Contractor Salary post Permie PAYE

**malvolio** · 2 September 2012, 22:22

There's no reason to take a salary if you don't have to, assuming you've used up your personal allowance. But don't make the mistake of thinking everything you do has to be governed by the taxes you pay; you don't have to pay any more than necessary, but that's not only not the main consideration, it's also not the main reason for going freelance.

As for "is it OK", who do you think is the judge? It's your business, you make the rules. I suggest you get busy with some reading of the guides on here, the Guide to Freelancing on www.pcg.org.uk and one of the accountant's ones such as sjd. As I constantly tell noobs, you have no idea how much you don't know.

**Contreras** · 2 September 2012, 23:02

Originally posted by ThomserveBAS View Post

Hi

I'm still getting my head around the financial aspects of my business, so apologies in advance for the noob question.

I have just taken my first contract which has fallen mid financial year. According to my P45, I have earned around 10k before tax this year, so am already beyond the point where I will pay tax on any salary taken from the business.

My question is - is it OK for me to not take a salary until the next financial year and live on other income (expenses/dividends) and is there any downside to doing so?

It's a common scenario, and yes it is always OK not to take a salary if you mean "is it legal". The usual downside is that you wouldn't get your NI stamp for the year but that doesn't apply here as you already earned £10k.

But you can still take a salary this year up to the NI threshold (£7488 ) without paying any extra tax (compared to the same amount as dividends) because although it will be taxed at 20% this is offset by a saving in Corporation Tax (also 20%). Any salary above that would mean you also need to pay NI contributions so if you need more then use dividends instead.

YourCo needs to be PAYE registered to pay salary. Ask your accountant, read the guides, etc.

**SarahL2012** · 3 September 2012, 08:59

Originally posted by ThomserveBAS View Post

Hi

I'm still getting my head around the financial aspects of my business, so apologies in advance for the noob question.

I have just taken my first contract which has fallen mid financial year. According to my P45, I have earned around 10k before tax this year, so am already beyond the point where I will pay tax on any salary taken from the business.

My question is - is it OK for me to not take a salary until the next financial year and live on other income (expenses/dividends) and is there any downside to doing so?

I started contracting 9 months into a financial year after being in a permie role & due to termination payments (redundancy) my accountant advised me not to take any salary or dividends if I could afford to until the start of the next financial year. So that's what I did & I actually got a rebate when I did my tax return because there were 3 months personal allowances that hadn't been 'used'.

**northernladuk** · 3 September 2012, 09:08

Originally posted by ThomserveBAS View Post

Hi

I'm still getting my head around the financial aspects of my business, so apologies in advance for the noob question.

Wouldn't it be a good idea to get an accountant who will not only answer your exact point but be able to elaborate so you learn more about the system in general so helping you not trip up in the future? A good accountant in your position will save you more than they cost.

**Contreras** · 3 September 2012, 09:53

Originally posted by SarahL2012 View Post

I started contracting 9 months into a financial year after being in a permie role & due to termination payments (redundancy) my accountant advised me not to take any salary or dividends if I could afford to until the start of the next financial year. So that's what I did & I actually got a rebate when I did my tax return because there were 3 months personal allowances that hadn't been 'used'.

This would make sense if you had breached the high rate tax threshold with the 9 months salary + redundancy.

**Greg@CapitalCity** · 3 September 2012, 10:24

Originally posted by ThomserveBAS View Post

My question is - is it OK for me to not take a salary until the next financial year and live on other income (expenses/dividends) and is there any downside to doing so?

Yes, it is OK. And if you take around £29,000 in net dividends or less, your total gross earnings (assuming you have no other sources of income) will not breach the basic rate limit...which will keep the personal tax you pay on those dividends at £0. And with the tax you have already paid on the £10k salary, you will probably be due a tax refund.

**psychocandy** · 3 September 2012, 10:45

Same as others. Last year, I'd already earned about 15K permie salary so accountant advised me to pay no further salary to myself just divis.

This year now I'm back to normal paying myself £624 a month plus divis.

As everyone says, get an accountant who will advise on this.

and I had a £2700 tax rebate as well!!!!!

**IR35FanClub** · 3 September 2012, 10:56

Originally posted by ThomserveBAS View Post

Hi

I'm still getting my head around the financial aspects of my business, so apologies in advance for the noob question.

I have just taken my first contract which has fallen mid financial year. According to my P45, I have earned around 10k before tax this year, so am already beyond the point where I will pay tax on any salary taken from the business.

My question is - is it OK for me to not take a salary until the next financial year and live on other income (expenses/dividends) and is there any downside to doing so?

Yep - In 2011 I got my divorce settlement (one of the lucky few who get something back after 18 years of misery and frustration) - so i took no salary and just a year end dividend that bought me just below the 40% tax limit.

**ThomserveBAS** · 3 September 2012, 11:11

Originally posted by northernladuk View Post

Wouldn't it be a good idea to get an accountant who will not only answer your exact point but be able to elaborate so you learn more about the system in general so helping you not trip up in the future? A good accountant in your position will save you more than they cost.

I have an accountant, this was something that was bothering me late on a Sunday night that I wanted to get straight in my head. I have no doubt my accountant will be all over this, but I wanted to get it straight on my own head. I'll double-check that they received my P45 and have updated my file accordingly.

Thanks for the replies folks.

Contractor Salary post Permie PAYE