Section 447

[skelm]

Hi
I wonder if anyone could enlighten me on what this whole Section 447 is all about.

Someone mentioned it to me hence the question.

It sounded like paying yourself a low salary was not a good idea and that HMRC could pounce on you. Really?? On what basis??

To me it seems ridiculous coz as a Ltd co director I dnt see why i cant decide to pay myself whatever I choose be it minimum wage or millions ( not that I will ever earn millions )

Then the rest I can pay as dividends to myself as and when I need ( and if i need to invest in the co ...i.e train myself in something use that also ).

Tax avoidance was mentioned but even if i pay a low salary I could still pay a lil PAYE tax and NI and as it is i am CT on the dividends so what makes that so different to someone who says he earns 50K and gets taxed on that? e.g a permie employee?

[SueEllen]

I presume you have an accountant?

Have a word with them.

Different accountants have different points of view which mainly consist of:
1. paying a salarly of the personal allowance and then taking everything else as dividends
2. paying the minimum wage and then taking everything else as dividends
3. paying a wage that is equivalent to a market level of your speciality of approximately 20K and then taking everything else a dividends

Personally I do one with my accountants blessing. Other accountants and one insurer, who posts on here, purpose that you do two or three.

There have been lots of threads on this issue so do a search for IR35 and you can read loads of threads that show that what HMRC are trying to do is catch people due to both their working conditions and contract.

Also if you are worried join the PCG and get PCG plus.

[skelm]

Thanks for that.

I was also advised option 1.

I was just wondering coz if i do option one and HMRC decides to rope me in ... whether accountant has said 1 or something else im still stuffed aint i?


Arrrrgh HMRC is royal PITA!!

[NotAllThere]

Tax avoidance was mentioned but even if i pay a low salary I could still pay a lil PAYE tax and NI and as it is i am CT on the dividends so what makes that so different to someone who says he earns 50K and gets taxed on that? e.g a permie employee?

Because there's no NI on dividends. And as a contractor, you pay employEEs NI and employERsNI. This really is basic stuff.

[Alan @ BroomeAffinity]

Thanks for that.

I was also advised option 1.

I was just wondering coz if i do option one and HMRC decides to rope me in ... whether accountant has said 1 or something else im still stuffed aint i?

No - because you aren't doing anything wrong. The same rationale would apply to option 2 and 3. If you're worried get investigation insurance so that if there is a investigation you will at least be able to put up a robust defence.

Arrrrgh HMRC is royal PITA!!

Yip. But that's part of being in business.

[xoggoth]

Previous discussions about level of salary to avoid HMRC attention that I have seen have mostly been about IR35 and have not really addressed Section 447 and the fear that this is another next bit of legislation, like the SS wife divi thingy, to be used in a supposedly unintended way to hit small companies.

[malvolio]

Not sure if non-members can see it, but the PCG has a guide on the subject of S447. Basically it's not meant to be pointed at small companies but at City Bonus schemes and the like, but we can't trust HMRC not to re-apply it in a "novel" way to widen its scope. However, until they do, you should not do anything different to normal.

So a bit non-commital, but right now nothing to worry about.

[NotAllThere]

Yes, it's public.