Dividends or PAYE

[TheCyclingProgrammer]

In other words a saving of £4 per year.

Yeah, not much in it. Quibbling over the right "optimum" salary is one thing but one thing for certain is not paying yourself salary is going probably doing to cost you in the region of £1500 in extra tax.

I was going to add a "no salary" column to my 2014/15 spreadsheet but Google docs doesn't work on the iPad. I'll update it tomorrow.

[TheCyclingProgrammer]

Turns out you can edit google spreadsheets on an iPad with the Drive app.

Updated spreadsheet here:
https://docs.google.com/spreadsheet/...Xc&usp=sharing

Changes:
* Fixed a small error in the corporation tax saving calculation; I was previously only counting the gross salary, but employers NI is also tax deductible.
* Added the £641/month salary to this years figures for comparison. As expected, it's about £5 difference.
* Added a column for no salary but now not sure why I bothered, as quite clearly the tax saving from this arrangement is nil.
* Mainly out of curiosity, added an "All salary" column to show the difference if you take the largest salary possible without going into the higher rate. Note the difference in both overall tax cost, as well as reduction in monthly take home! This might not be completely accurate because I haven't checked the NI thresholds, but it's illustrative.

[psychocandy]

I've recently started contracting and setup a limited company. I got an accountant who advised me to take dividends at quarterly intervals and that he didn't think it necessary to setup payroll. When I asked him what about national insurance contributions he said something along the lines of, at the end of the year we'll make a voluntary contribution to top it up.

The accountant has now left the firm and the new guy is saying I need to setup payroll. I'm confused about the pros and cons of this are they just trying to make more money by charging me to run payroll?

As the sole director do I need to pay myself a wage or is it acceptable to simply take a dividend 4 times a year?

What does everyone think?

Get a new accountant. This one is clueless.

[DirtyDog]

Get a new accountant. This one is clueless.

Disagree.

The accountant is suggesting setting up payroll, which implies that they are thinking about using up some / all of the basic rate threshold to take money out of the company without paying as much tax as doing it via dividends alone. Also, if there are additional expenses which will be reclaimed (apart from mileage at the standard HMRC rates), you will need to have payroll set up.

That sounds like they are more clued up than the previous accountant to me.

[jmo21]

Why not take your dividends as early as you can to get them out of a virtually zero percent account and do something with it. Take the whole years allowance out right at the beginning of the tax year and slap it in your offset mortgage or something.

this is why.......

I've recently started contracting and setup a limited company.

What you suggest is for more seasoned contractors, with large amounts saved.

[Craig at Nixon Williams]

In view of this:

I've recently started contracting and setup a limited company.

This is the most important consideration for the OP:

Have you already earned money this year from a PAYE job? If you have then it may be worth waiting till 6th April to start drawing a salary. Your accountant can advise based on your P45 from your last job.

This point seems to have been overlooked for the sake of debating other things…

Craig

[Cpo]

Thanks for all your responses folks, really helpful

[Zero Liability]

Nobody knows for certain as he final details haven't been announced but it should be a flat £2k allowance for ALL businesses.

https://www.gov.uk/government/upload...3_Final_v2.doc

I'm sure we will know by April.

I hope it functions as a flat £2k allowance. I had read elsewhere it could be an exemption per employee, but the document you linked to doesn't imply that.

Just out of curiosity, where is it written that it will not apply against employer NICs for contractors inside IR35? If HMRC is going to pretend the intermediary isn't there when it's convenient but still demand NICs due from the intermediary, surely you should be able to offset these? Because if they did (hypothetically) pursue them from the end client (the supposed employer), I can't see why the end client wouldn't be able to apply this exemption; so why is a PSC any different?

[TheCyclingProgrammer]

I hope it functions as a flat £2k allowance. I had read elsewhere it could be an exemption per employee, but the document you linked to doesn't imply that.

Just out of curiosity, where is it written that it will not apply against employer NICs for contractors inside IR35? If HMRC is going to pretend the intermediary isn't there when it's convenient but still demand NICs due from the intermediary, surely you should be able to offset these? Because if they did (hypothetically) pursue them from the end client (the supposed employer), I can't see why the end client wouldn't be able to apply this exemption; so why is a PSC any different?

There has been no suggestion from HMRC that PSCs will not eligible, whether inside or outside IR35, although I believe there has been some commentary from others to that effect. The only reference I've seen is this article that Martin @ NW posted in my previous salary thread:

Every business and charity to receive a £2,000 employment allowance - Employers | UK Budget 2013 | Deloitte UK

[ASB]

I hope it functions as a flat £2k allowance. I had read elsewhere it could be an exemption per employee, but the document you linked to doesn't imply that.

Just out of curiosity, where is it written that it will not apply against employer NICs for contractors inside IR35? If HMRC is going to pretend the intermediary isn't there when it's convenient but still demand NICs due from the intermediary, surely you should be able to offset these? Because if they did (hypothetically) pursue them from the end client (the supposed employer), I can't see why the end client wouldn't be able to apply this exemption; so why is a PSC any different?

I believe it will apply. It applies to actual salaries and if these are paid then bingo.

I don't think it will apply to deemed payments though. There isn't a salary paid. Only a tax calculation.