Reduce director pay from 7,470 due to other income?

[richy]

Hi All

Just wondering, as a director of ltd co, receiving 7,470 per annum PAYE.. also receiving 4k per annum "Profit from UK land and property" (as self-assessment likes to call it ..

...should I knock down that PAYE by 4k down to 3,470?

I presume my self-assessment is hitting me for ~23 % of that 4k -- 920£
Cheers
rich

[Greg@CapitalCity]

Yes, you will be paying tax on your property income at a rate of 20%. However if you are a standard rate tax payer there are hardly any gains to be had in adjusting your ltd company salary. A reduction in salary (and the resulting personal tax savings) will be offset by the rise in corporation tax you pay by the resulting increase in your company net profit.

You are paying a little more in NI than perhaps you need to - consider cutting your salary back to £7,225 per year to keep it below the threshold at which NIC's become payable.

If you are a higher rate taxpayer, then cutting back your salary will make a difference, as it will bring the corresponding amount in dividends out of the higher rate earnings bracket. You do of course end up earning less money, and this exercise would be pointless if you needed to pay yourself more dividends to compensate for the reduction in salary.

[Martin at NixonWilliams]

You are paying a little more in NI than perhaps you need to - consider cutting your salary back to £7,225 per year to keep it below the threshold at which NIC's become payable.

At £7,225 there would be some employer's NI due, might be worth dropping to £7,072 to avoid NI altogether? It might be slightly less tax efficient (by a very negligible amount) but would avoid the need to pay approximately £1.75 to HMRC each month.

Just a thought

Martin

[Greg@CapitalCity]

At £7,225 there would be some employer's NI due

Arrgghh - glad you picked up on that Martin - I knew you would

[Optimus Prime]

Is it IR 35 unfriendly to not pay yourself any salary at all (if I already have salary over 8k from a perm job) ?

[richy]

Thanks for all the tips!

ltd co pays out the divs into higher rate, around 50k divs per year. so i'll just leave as is if nothing to gain. that lowering to 7k could be one option to consider.

[Greg@CapitalCity]

Is it IR 35 unfriendly to not pay yourself any salary at all (if I already have salary over 8k from a perm job) ?

Not at all - pay yourself whatever salary you like. Its often been said that the level of salary can be an indicator that the HMRC use to determine whether to visit your company for a compliance check or not. I have not seen that myself, and the tax inspectors I have spoken to confirm my view. Still, some disagree and luckily everyone is entitled to an opinion.

IR35 itself though is a matter of employment law - the salary you pay yourself would not be considered a factor in determining your IR35 position.

To be fair, the tax difference for you here is minor so long as you keep your total earnings from all sources below the higher rate earnings threshold (for the same reasons I gave above). But I can see how it will help reduce your admin by keeping ltd company salary at zero for the rest of the tax year.