What are the advantages of paying more PAYE than is strictly necessary?

[aubergine]

Apologies if this has been asked countless times before (I'm sure it has) - feel free to point me to other relevant, up to date discussions.

I have had a few take home illustrations done by various accountants and they seem to vary in the balance of PAYE versus dividends they suggest I take. The illustrations that involve paying more PAYE than the minimum mean slightly less take home over the year (despite identical professional fees). I'm wondering why you would voluntarily opt to pay a little more in tax?

I can think of a couple of possible reasons:

- it affects your NIC in some way
- it reduces the likelihood of an HMRC investigation

Are either of these correct? Are you less likely to attract the attention of HMRC if you pay a bit more? Is there something I'm missing here?

Really appreciate any advice.

[Taxless]

If you opt to pay a little more in tax then yes you pay more NIC, as does your company. The level of contributions you make can impact on what benefits you might qulify for.

It does NOT reduce the likelihood of an HMRC investigation

[centurian]

WHS

It's not like HMRC will say "ah, bless him, he paid some of the tax he should have - let's let him off the rest"

[Wanderer]

It's not like HMRC will say "ah, bless him, he paid some of the tax he should have - let's let him off the rest"

True, once HMRC have their hooks into you they will take their pound of flesh so you might as well be hung for a sheep as a lamb.

[Sausage Surprise]

Apologies if this has been asked countless times before (I'm sure it has) - feel free to point me to other relevant, up to date discussions.

I have had a few take home illustrations done by various accountants and they seem to vary in the balance of PAYE versus dividends they suggest I take. The illustrations that involve paying more PAYE than the minimum mean slightly less take home over the year (despite identical professional fees). I'm wondering why you would voluntarily opt to pay a little more in tax?

I can think of a couple of possible reasons:

- it affects your NIC in some way
- it reduces the likelihood of an HMRC investigation

Are either of these correct? Are you less likely to attract the attention of HMRC if you pay a bit more? Is there something I'm missing here?

Really appreciate any advice.

No advantage whatsoever

[Greg@CapitalCity]

Interesting developments

There have been interesting developments on this, but the theory remains the same.
(1) Pay yourself a high salary = low risk (by this I mean if the tax office were to find you caught by IR35 any additional taxes payable would be low because you were paying them already);
(2) Pay yourself a low salary = high risk (for the opposite reason above).

If you are comfortable with your IR35 status, then choose a salary that best suits your circumstances. If you want to minimise tax and are comfortable about IR35 you should be looking at around the £7,000 per year mark. If you are advised you must pay at least the NMW ignore the advice - its wrong.

[Ovalteen]

Not sure I would entirely agree with the advice above. Firstly it’s not in the public domain what triggers an IR35 investigation but we know its risk scoring. Low costs in relation to turnover and low salary would I imagine put you in a higher risk category. There is also the HMRC segmentation about to be published so it would be interesting to see what that says. But common sense if you were an HRMC inspector and under pressure to deliver yield and you had two limited companies on your desk both operating for 6 years. One salaries were 50% of turnover and one 5% which one would you choose?

[SueEllen]

Not sure I would entirely agree with the advice above. Firstly it’s not in the public domain what triggers an IR35 investigation but we know its risk scoring. Low costs in relation to turnover and low salary would I imagine put you in a higher risk category. There is also the HMRC segmentation about to be published so it would be interesting to see what that says. But common sense if you were an HRMC inspector and under pressure to deliver yield and you had two limited companies on your desk both operating for 6 years. One salaries were 50% of turnover and one 5% which one would you choose?

From the people I've been in contact with who have had HMRC inspectors dig around common sense isn't one of their strong points.

They will try and dig until they find something if you trigger an investigation on any aspect of your business. Your best response is to involve someone i.e. a lawyer who knows what they are doing immediately.

[Greg@CapitalCity]

Not sure I would entirely agree with the advice above. Firstly it’s not in the public domain what triggers an IR35 investigation but we know its risk scoring. Low costs in relation to turnover and low salary would I imagine put you in a higher risk category. There is also the HMRC segmentation about to be published so it would be interesting to see what that says. But common sense if you were an HRMC inspector and under pressure to deliver yield and you had two limited companies on your desk both operating for 6 years. One salaries were 50% of turnover and one 5% which one would you choose?

Just to be clear, an IR35 investigation does not spring out from nowhere. The first stage is a compliance visit, which is a general health check on the company. Now its the compliance visits that are good to avoid in the first place. They usually come about when you have done a poor job in your PAYE reporting (make errors, file late etc) - or sometimes the selection is just random. The HMRC inspectors I have spoken to say its usually one of the two. If after the compliance visit the inspector believes there is a problem with IR35, then they will pursue that further. Salary does not appear to feature in their decision making for a whether a compliance visit goes ahead or not.