Showing posts with label personal service company. Show all posts
Showing posts with label personal service company. Show all posts

Sunday, March 16, 2014

Optimum salary for directors: changes this year

This is one of the questions we hear most often: what is the optimum salary I should take as a director?

There are many salary calculators on the web that you can use but the easiest way in the past has been to take the maximum salary that does not attract taxes nor national insurance, neither for the employee nor for the employee (see our previous article). In 2013/2014 that amount was £7,696 pa. But in 2014/2015, due to the new £2,000 Employment Allowance, there is now a new option for directors' salaries:
  1. If the company is able to use all the £2,000 Employment Allowance in the year, then the best route for the Director’s salary will be to pay over the LEL but below the secondary level in 2014/15 i.e. £7,956 pa (£663 per month). The rest will have to topped up by dividends as per in the previous years.

Thursday, March 28, 2013

What is the optimum salary for a director?

It's common practice for directors of small businesses who are also the company owners to pay themselves a small salary and then take the rest of their income as dividends from the available profit. The reason is for tax efficiency. A company starts paying corporation tax from the first pound of profit and salaries being an expense, they reduce that profit. Dividends on the other hand are distributed after corporation tax of 20% (for small businesses) has been paid. The problem with salaries on the other hand is that they can be heavily taxed on the recipient and also they generate significant Class 1 National Insurance Contributions (12% for the employee and 13.8% for the employer). Thankfully Income Tax and NIC are only charged after you earn a certain amount per year.

From 6th April 2013 the rate at which you can pay a salary to an employee without suffering Income Tax and NIC will increase from £7,488 to £7,696 per annum. This is known as the Employers’ Earnings Threshold. If you have Limited Company and pay yourself a small salary then you should consider increasing the salary up to this threshold.

Monday, November 12, 2012

What is the settlements legislation?

Sharing dividend income from a limited company with a non-fee-earner has been a classic tax avoidance tactic employed by consultants, contractors and locum doctors who operate through limited companies. It is useful as it allows the use a non-fee-earner’s tax allowances and progressive taxation rates in order to save significant tax.

However, unless the non-fee-earner is a spouse or civil partner qualifying for a spousal exemption, HMRC could treat all the company’s fee income as that earned by the contractor, and tax them accordingly. The settlements legislation will apply if a contractor gives shares in their contractor limited company to a partner, family member or friend who does not work in the business yet receives an income.

Sunday, May 13, 2012

HMRC publishes new IR35 test

HMRC has begun the process of overhauling its operation of the IR35 regime for personal services companies with new guidance that sets out some basic risk factors that will affect a contractor’s chances of being investigated. This overhaul will mean an increase in the number of IR35 investigations, the tax department confirmed.

The new guidance includes 12 business entity tests, each one receiving a different score, and they are designed to build up a picture of how a contractor’s business works and how they provide their services. These tests and their individual scores are:
  1. Business premises test - Does the business own or rent business premises separately from the contractor’s home or end client’s premises? (10 points if yes)
  2. PII test - Does the contractor need professional indemnity insurance? (2 points if yes)
  3. Efficiency test - Has the business had the opportunity in the past two years to increase its revenue by working more efficiently? (10 points if yes)
  4. Assistance test - Does the business employ any workers who bring in at least 25% of the yearly turnover? (35 points if yes)