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Tax efficient salary for 2016/2017

Tax efficient salary for 2016/2017

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Dear All,

Appreciate if any  one can let me know  most tax efficient monthly salary under  following situations. ( assuming in the past directors takes salary & dividend)

1 ) One director company  and no other employees

2) two director company ( both spouse are directors and no employee)

3) Directors  and one or more employees 

Thanks in advance.

Replies (38)

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By cheekychappy
18th Apr 2016 12:27

.

 

Thanks (5)
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By SE
14th Apr 2016 11:25

Not sure I agree

I had thought that a £11,000 salary worked out better in situations where the £3k employers NI allowance was due e.g. 2 director companies paying NI and employees paying NI?

Thanks (1)
By cheekychappy
18th Apr 2016 12:34

.

Thanks (2)
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By pauld
14th Apr 2016 11:41

Agree

with SE on (2) and (3) assuming enough company profits to declare and no other personal income to take into account.

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Image is of a pin up style woman in a red dress with some of her skirt caught in the filing cabinet. She looks surprised.
By Monsoon
14th Apr 2016 11:42

It's always £8060. A search

It's always £8060. A search on Any Answers will show this.

Thanks (3)
By northernmonkey
14th Apr 2016 11:42

oh dear!

Here we go again!

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By Pygmy
14th Apr 2016 11:59

Where's Portia

 when you need her?

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Replying to memyself-eye:
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By Intellex
15th Apr 2016 08:40

Portia

Pygmy wrote:

 when you need her?

She (and her not very subtle alter-ego) seem to have both disappeared after her little outburst the other day.

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By SE
14th Apr 2016 13:24

£11,000 or £8,060

The £11,000 salary leaves the director with a £352.80 NI liability. However, the company gets additional CT relief of £588. Looking at the overall family and their company position, is £11,000 salary not better when employment allowances is due or am I missing something. I appreciate £8,060 is better if purely looking at the director.

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Replying to LAKE:
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By 1 2
14th Apr 2016 13:34

All you're missing...

SE wrote:

The £11,000 salary leaves the director with a £352.80 NI liability. However, the company gets additional CT relief of £588. Looking at the overall family and their company position, is £11,000 salary not better when employment allowances is due or am I missing something. I appreciate £8,060 is better if purely looking at the director.

I think all you're missing is the sarcasm from some of the above posters, as they're a little tired of this being discussed to death over the last month or two.

Thanks (7)
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By thomas34
14th Apr 2016 13:41

I'm using £671 per month

for months 1 to 11. In the meantime I'll be looking out for a specialist course on the subject in order to make a decision for month 12.

 

Thanks (1)
By cfield
14th Apr 2016 13:44

Depends on other income

It depends on whether the client has any other income to use up his/her PA. If not, then an £11k salary will indeed be tax efficient as the corporation tax saving will exceed the employee NI.

However, if they do have other income (e.g. pension or rental profits on a home office), then the extra salary will be taxed at 20%, which will offset the corporation tax saving. All you will have done is incur the employee NI, so you're better off sticking to £8,060.

If there is no other earned income but the client has interest, then you need to factor the £5k savings band and the £1k personal savings allowance into the equation too. Usually it will be worth going up to £11k salary as the £5k + the £1k are enough for most people.

That's assuming they qualify for the £3k employer allowance. If not, stick to £8,060.

There are other scenarios of course but it would take too long to go through them here. In short, there is no wrong or right answer. It depends on the client.

Thanks (3)
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By pauld
14th Apr 2016 14:01

11k + rental home office

Following on from cfield's comments, I think even if there is rental income of say 3K from charging Ltd co for home office, 11K + rent is still slightly better than 8K + rent assuming EA ok and have some household expenses to offset.

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By cfield
14th Apr 2016 14:11

My figures are net of expenses

I'm talking about rental profits, not rental income. Obviously if you still have any of your PA left it will be worth taking extra salary to cover it (assuming no employer NI) but why not just put up the rent to cover it instead? There's no NI on rent.

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By pauld
14th Apr 2016 14:10

Thomas34

Don't put off until tomorrow what you can do today.......................

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Replying to Tax Dragon:
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By thomas34
14th Apr 2016 17:28

Fair Comment

pauld wrote:

Don't put off until tomorrow what you can do today.......................

But experience has taught me that anything promulgated by HMRC is likely to be amended/changed at some point because of their inability or unwillingness to accept the legal position. I'm referring to the recent guidance on the Employers Allowance which contradicts what the law actually says (as perfectly expounded by Portia on another thread).

So the OP's multi-choice examination question cannot be answered with any certainty.

 

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By SteveHa
14th Apr 2016 16:21

It's £8,112.

It's £8,112.

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Replying to GR:
By cfield
14th Apr 2016 17:25

No, still £8,060

SteLacca wrote:

It's £8,112.

That would give you a £6.24 NI bill (and the hassle of having to pay it).

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Replying to DaveyJonesLocker:
By SteveHa
15th Apr 2016 08:34

CT

cfield wrote:

SteLacca wrote:

It's £8,112.

That would give you a £6.24 NI bill (and the hassle of having to pay it).

 

Yes, but would save £10.40 CT. Net saving of the extra £52, £4.16.

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Replying to lionofludesch:
By cfield
15th Apr 2016 09:45

Mustn't shunt

SteLacca wrote:

cfield wrote:

SteLacca wrote:

It's £8,112.

That would give you a £6.24 NI bill (and the hassle of having to pay it).

 

Yes, but would save £10.40 CT. Net saving of the extra £52, £4.16.

But only if the client does not have sufficient "earned" income to use up their full PA. If they do, you are simply shunting more of that income into the basic rate band and generating 20% tax (or even 40% tax) on that shunted income. That wipes out the CT saving and the end result is 12% NI they didn't need to pay.

On the other hand, if they do have some of their PA left (not absorbed by interest or dividends) then it makes sense to pay them a higher salary, so long as it doesn't shunt any of their income into the higher rate band.

If so, it is unlikely to be £8,112 exactly, just because that happens to be the point where employer NI kicks in (assuming the EA cannot be claimed). It will be somewhere between £8,060 and £11k.

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By pn
14th Apr 2016 16:33

not paying fair share....

Does this mean that the director is not paying his fair share of tax

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Replying to rmillaree:
By cfield
14th Apr 2016 17:30

More than his fair share

pn wrote:

Does this mean that the director is not paying his fair share of tax

No, because he's paying even more in corporation tax than he would in income tax. It's the NI he's saving, and as we all know, NI is not a tax. That's why it goes down to 2% after the first £42,385 and why there never used to be any more for the employee to pay at all pre-Gordon Brown.

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By David Treitel
14th Apr 2016 20:38

plus £300 a head...

Don't forget to add 6 £50 Tesco/Amazon/M&S or whatever gift vouchers for each director and unlimited vouchers for other employees...

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By peterlashmar
15th Apr 2016 09:03

Director's remuneration

8,065 in all circumstances

Plus  pay interest on DLA  depends on circumstances

         dividends -  5k tax free

pension contributions

Needs to be considered overall to ensure optimum tax position

 

P.S. It is sad that these comments seem to often be bad tempered

 

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Replying to Barbara G:
Stepurhan
By stepurhan
15th Apr 2016 09:07

Definitely wrong

peterlashmar wrote:
8,065 in all circumstances
That will work for a common setup, However, for some people that will create an additional tax bill and for others it will miss out on additional tax savings. There is a reason why people keep saying that it is no longer a one size fits all answer

Seeing blatantly incorrect statements like this over and over again is why comments become so bad tempered.

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By airgeadagam
15th Apr 2016 09:16

What About

What about the adding 99p if only whole pounds are subject to NI?

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By pauld
15th Apr 2016 09:52

Its good to see...........

that the tax system has now been simplified and just at the right time before the introduction of  'making tax digital'. 

With all of these changes which make personal tax so easy to understand i.e. marriage allowance, savings allowance, interest allowance, dividend allowance, employment allowance, who needs an accountant!

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By JCresswellTax
15th Apr 2016 09:56

Really?

I am first of all dismayed at the fact someone who is presumably calling themselves an 'accountant' has to ask this question in the first place.

But to make matters worse, some of the posters that then answer (seriously!) give a wrong answer!

It is not difficult.  Review the position, crunch the number, do the sums - isn't that what we are supposed to be good at after all?

Really, unless the OP is a wind up, he/she should hang his/her head in shame.

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By pauld
15th Apr 2016 10:04

Jcresswelltax

Very constructive as per usual...................

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By fellowcraft
15th Apr 2016 10:04

.

I disagree that the OP needs to hang their head in shame.

This is an open forum where people can network, get advice from each other, kick ideas about - that's what it's for, and it always has been. It's a very useful tool when we spend our days working our backsides off, and sometimes struggling to keep up with the constant additional burden of regulation, and the constantly changing landscape. Advice changes from one year to the next.

Obviously this has been done to death, but there are still loads of conflicting views.

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Replying to thomas34:
Stepurhan
By stepurhan
15th Apr 2016 10:13

Are there?

fellowcraft wrote:
Obviously this has been done to death, but there are still loads of conflicting views.
For any individual client, there will be a single figure that is most tax-efficient for them. For a lot of clients (sole directors who only have income from a personal company) that single figure will be the same.

The only "conflicting views" I'm seeing is those that are trying to give a one size fits all answer that will achieve the best tax result for everyone. That is not a conflicting view (which would require it to be solely a matter of opinion), but simply factually incorrect. There is no one size answer that will fit all, with even something as simple as whether there is a second employee changing the answer now.

If everyone else says the sky is blue, and I claim it is pink with purple polka dots, I am not expressing a conflicting view.

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By JCresswellTax
15th Apr 2016 10:12

But but but

The OP isn't getting advice or kicking ideas about!

He/she has basically came on and said, I don't know the answer to this simple question and I can't be bothered to research it or, even simpler, search any answers!

Sorry but you will not change my view that this is lazy and unacceptable.

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By pauld
15th Apr 2016 10:22

Hassle

And all this just to save a few hundred quid in tax, if you manage to get it right that is. In fact does it really matter if you don't get it right, cos the client's not going to have a clue. The extra work involved, assuming you're not billing for it, is just not worth the hassle.

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By HeavyMetalMike
15th Apr 2016 10:39

PaulD - if you pick up a client who was being advised to pay 8K and you then said pay 10K (as was) and the tell the client you're saving £159 (as was) per year then the client might be really really happy.

Noted another client might not give a toss. But you telling them that you're doing the best is what will impress them. Not saying it's too much hassle.

It's not hard to work this out "en masse" there are a handful of option/circumstances. Those with other income, those with not etc.

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By pauld
15th Apr 2016 10:49

just to defend my off the cuff comments re hassle

I have advised all my Ltd Co clients on the most tax efficient way of extracting funds. Everyone is different and is has taken a lot of time.

I have not billed any extra for this work and that may be a mistake as I felt a extra fee would wipe out a lot of the tax saving.

Therefore for me it's been a lot of hassle putting spreadsheets together to work out the best scenario for each client and due to the volume of work involved its possible I may have made mistakes with some - hence my off the cuff comment about hassle.

 

 

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By pauld
15th Apr 2016 11:00

Cheekychappy

Have you been locked away at Her Majesty's pleasure for too long?

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By cheekychappy
18th Apr 2016 12:27

.

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By NotAnAcctantJustReading
15th Apr 2016 11:53

This thread is all fowled up

Nobody reminded the director that to be truly tax efficient, he needs to have his company buy his Christmas turkey.

 

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