small salary & dividends

small salary & dividends

Didn't find your answer?

What salary to use in 2006/07 for small salary and the remainder as dividends?
£6,000? - seems to pay too much paye.
£5,000? - doesn't pay any NIC.
Andy

Replies (10)

Please login or register to join the discussion.

avatar
By AnonymousUser
28th Apr 2006 08:08

Excuse me?
Can you be more specific? ie
What objection do you have to not paying any NIC?
How much PAYE is "too much"?
What is the marginal rate of CT on the company?
Are we to assume that IR35 does not apply?
Does the employee wish to fund a pension and if so, how much and by what route?
Is there a contract of employment, and what hours are worked?
What total net disposable income is required by the employee?
What is the state of the company's distributable reserves?
Are there any other shareholders?
Does the employee claim CTC or WTC
Does the employee have a loan account with the company, and what is the balance on that account?

I expect that there are other issues that might be of possible relevance.

Thanks (0)
avatar
By User deleted
28th Apr 2006 08:52

Salary of at least £4368 pa.
To gain the benefit of credits for NIC / state pension purposes the 2006/07 minimum salary is £84 per week - or £4368 pa.

Unless there's other non-dividend income, then increase this salary to £5035 pa. to use up all the personal allowances - no NIC cost upto the personal allowance limit.

The mentioned salary of £6000 does NOT seem tax efficient - although it might use up some of the 10% tax band, it costs 23.8% NIC (11% ee + 12.8% er).

Most small companies I deal with have a salary level of between £4368 & £5035 for 2006/07, the rest of personal drawing requirements being from dividends and drawing off the directors loan accounts where circumstances permit.

Thanks (0)
avatar
By stephenkendrew
28th Apr 2006 11:19

Still paying NI
£5,000 does pay NI - at 0%.

Most of our clients are getting a wage of £97 per week or £420 per month although, as Clint has pointed out, there are lots of other issues that need to be taken into consideration.

Thanks (0)
DougScott
By Dougscott
28th Apr 2006 12:19

Salary and rent
In small company circumstances like this we often find it is most tax efficient to pay the personal allowance (normally £5035) as a salary and, if the client has an office at home charge a commercial rent for that office to the company such that the client makes a profit on the rent of around £2000 to use up the 10% band of personal tax, the rest is then paid in dividends as and when sufficient profits arise. But as others has said there are several factors to take into account, particularly pension contributions!

Thanks (0)
avatar
By Cant Add Up
02nd May 2006 17:04

PA + 10% ??
Surely the 10% band really costs you 33.8%
ie 10% IT, 11% E'e NIC and 12.8% E'r NIC???????

As such it's pretty expensive way to extract (cf marginal CT)

ps...I'm not an accountant.

Thanks (0)
avatar
By pdorrington
02nd May 2006 16:30

PA + 10% ??
Not sure whether I have misunderstood here but someone with a minimum salary of £5,035 and dividend income will not benefit from the 10% tax band therefore isn't it best to set the minimum salary at a rate equal to PA + 10% tax band ??

Thanks (0)
avatar
By User deleted
28th Apr 2006 14:52

SDLT on rent?
I have used rent as well in certain circumstances, but a converstaion with a lawyer recently has raised a question mark over the flexibility. If variable rent depending upon circumstances is paid from time to time, I understand that this in effect creates a lease even if there is no documentation and then SDLT may be payable. Is this correct?

Thanks (0)
avatar
By Malcolm Veall
28th Apr 2006 14:31

Rent is OK
Doug,

How refreshing to see someone else using rent in these circ.s. I was beginning to think that I was the only one to see this as a possibility.

Thanks (0)
avatar
By Malcolm Veall
11th May 2006 09:50

SDLT
Given the SDLT thresholds this is inly likely to be an issue if the home office is very long term. (with a continuing tenancy you only have an SDLTable transaction once the threshold is passed.).

Thanks (0)
avatar
By Malcolm Veall
11th May 2006 09:46

NICs AND Tax Credits to take into account
Jackie,

I agree, the NI cost makes it a pointless excercise.

Tax credits also have to be taken into account; if the director/shareholder has minimal other taxable income, (eg no divids taken in the first part tax year after incorporation), it is possible that a PA Dir Rem of £5K will save CT @ 19% but cost 37% in terms of reduced tax credits.

Thanks (0)