Our client has two directors who are also the two shareholders.
They use a low salary dividend remuneration package and are higher rate tax payers.
Director A now wishes to have childcare vouchers for a young child and in order to be equitable to Director B intends to salary sacrifice so that the company is not detrimentally affected.
I have two queries
1) All the guidance seems to suggest that since his salary is beneath the higher rate he is eligible for £243 sacrifice (even though he is a higher rate tax payer). Is this correct?
2) If he sacrifices the £243 pm / £2,916 then this will take him beneath the lower earnings limit. Should he just accept this, or is the trade off to encourage both directors to increase their salaries in order for Director A to be able to sacrifice and still accrue a qualifying year. For Director B this leads to PAYE, ees NI and ers NI and more dividends at higher rate. Seems unfair on Director B.
Thanks
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Replies (6)
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A director who does not have a service contract is not subject to the National Living Wage legislation.
There wouldn't be any e'ers NI if employment allowance has been claimed. Just work out the additional amount due to B (grossed up if necessary) and add it on or any savings will be overridden by your fees in calculating all the nuances. Alternatively get B to put through an equivalent amount in personal expenditure and treat as a trivial benefit (provided each payment less than £50, not cash, total less than £300 etc).
Thanks LW64.
However,given that they are both directors without contracts I wasn't expecting minimum wage to apply.
Why doesn't Director A sign up for the new tax-free childcare? It will avoid the problems you envisage.
Although the company can still set up an employer-funded childcare scheme now, it will only be possible to set up tax-free childcare after 5th April 2018.