Director's Salary Advice

[LandingNet]

Hi

There are three directors in our company, and over a period of time under the PAYE scheme have paid ourselves £47k after tax between the 3 of us, and paid HMRC £17k in PAYE and NIC.

A number of people seem to think that paying ourselve salaries upto the tax threshold and then paying ourselves dividends is a better way to go although our accountant doesn't seem to subscribe to this idea.

Any advice would appreciated as it seems to be crippling us at the moment

Many thanks

 

[David Griffiths]

Paying dividends will reduce the overall tax burden.

The monthly PAYE payment will go down by the amount of PAYE and NIC relating to directors salaries BUT the company corporation tax bill will increase by roughly half of that sum because there is no tax relief for the dividends

By the time that the corporation tax bill comes around you will have forgotten about the savings that you have received, and will moan about the amount of corporation tax that you have to pay! It will of course be the fault of the accountants or whoever told you to do it.

You can only pay dividends if the company has distributable profits and you should hold proper meetings to consider management accounts and declare the dividends. Most of my clients do this quarterly, but draw the cash monthly

As there are three of you, there is a case to say that the salaries should be at the level of the national minimum wage. NMW regulations don't appy to diretors without service contracts but the first time I saw this advice it was from a legal firm who were guarding against somebody leaving (presumably as the result of an argument) and then coming back to lodge a claim.

 

[Zeno]

We cannot provide any meaningful advice without knowing the facts. Your accountant will know the background to your business and we cannot second guess him without further information.

Is your company profitable for example - does it have the reserves to pay dividends?

 

[KM-Tiger]

Ouch!

Is your accountant a secret agent for HMRC?

Are you all shareholders as well as directors? Dividends are payable to shareholders, not directors, and the dividend is per share, so the size of the shareholdings matters.

But, if I were you I'd change accountants and get this sorted.

 

[LandingNet]

Thanks for the quick response guys - certainly gives us something to think about..

Ouch!

Is your accountant a secret agent for HMRC?

 

[elaine@cheapaccounting]

although our accountant doesn't seem to subscribe to this idea.

Can i suggest that you ask your accountant why he / she has this view.

I would suggest you ask fro him / her to produce a tax calc based on salary v dividend - a reasonable thing to ask for in your situation