I look after a ltd company with 2 directors. During their first year of trading they didn't take anything out of the businesses. Now in the second year, they are looking at taking a small salary/dividends. Can anyone please help me with what to suggest? I know the accountant would be the best person, but just wondered if anyone had any thoughts.
If the business is able to afford a salary, why don't you suggest £6475 per annum each. this will mean a small payment of NHI each month but no tax liability(unless working elsewhere as well). This equates to £539.58 per calendar month. Any other drawings can be dealt with as dividends.
KMB - this Webiste may help, the last time I advised about this you didn't need to get the client to pay any NIC to get credit for State Pension.
There maybe other issues which may comes into play, like Director Loan Accounts and keep in mind that you can offer and charge for a service which takes care of the paperwork on dividends. If a business doesn't take the money out correctly they could be in serious trouble if the taxman looks closely!
Protecting clients safe is a key benefit bookkeepers provide, like an insurance policy. Even if you don't do the paperwork you can review it...this is all added value.
If the directors haven't had any other PAYE since April, they can take £476.04 per month through PAYE. This won't attract any Tax or NI.
Other amounts can be taken though the Directors Loan Accounts, if they are in balance or, under the correct circumstances and with the correct paperwork, through dividends.
If you want some more advice based on their specific circumstances, please let me know.
Whilst I accept what Bob & Zoe say, that there is no need for your client to pay NHI, I do explain this to my clients. I find that the majority are quite happy to pay £1 - 2 per month into the system. I also speak to a lot of tax inspectors and they are happy if people show willing and pay a little into the system. I know that part of our remit is to get the best possible deal for our clients. I do feel that by following the no payment way of life, sooner or later we are going to have a goverment who will change the rules to ensure that everyone pays a full whack into the NHI system so by paying a little we may be able to forestall that decision. we currently have a NHI system that is grossly overloaded so every little £2 a month is going to help. Don't forget that we are currently castigating immigrants for abusing our system without paying a penny into it....and now we are advocating the same?
Farmergiles - provided you inform the client and get their agreement I think you should do what you feel is right.
You have a point which I have considered with accountants I have worked with in connection with sophisticated tax strategies these often result in no tax being paid. However, accountants must do whats best for the client and I think you need to be seen to as well.
Imagine a client of yours calling you up after talking to another business owner, accountant, bookkeeper or reading this forum and asking you why youve made them pay more tax/NI than they need to!
Hi bob. I understand what you are saying but I totally agree with farmergiles. I believe that if explained to the client they would be more than happy to pay over a little paye/ni.
