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Ask Your Own Question, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5115
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
Type Your Tax Question Here... is online now

Started my own business (ltd) last year and am now earning

Customer Question

Hi, started my own business (ltd) last year and am now earning enough income to start payroll for myself and my wife. I have 2 other incomes, both modest 1 from share dividends ca. 3k/annum and and 1 from a rented second property ca. 3k/annum. My wife is not earning, so she has a 8k free personal allowance and i have 5k free personal allowance.
I was planning to pay us both as follows:
Wage £8060
Divi £20000
Divi tax £750 (£5k divi allowance and 5k pers allowance)
Net Divi £19250
Take Home £27310
Mrs Me:
Wage £8060
Divi £13000 (5k divi allowance 8k pers allowance)
Divi Tax £0
Take home £21060
Questions are
1) is this most tax efficient plan?
2) do i have to pay divi at year end, or can i pay them through the year
3) as we are already 6 months into the financial, am i right in thinking i can only pay myself £671/month or can i backdate the salary to the year start?
Submitted: 1 year ago.
Category: Tax
Expert: replied 1 year ago.

Hello and welcome to JustAnswer. I am here to help you. I am reviewing your question and will respond to you shortly.

Expert: replied 1 year ago.

Thank you for your question...

The plan is tax efficient but you have to consider the following:

You should bear in mind from 6 April 2016, the notional 10% tax credit on dividends is abolished. First £5,000 of dividends would be tax free as covered by Dividends allowance. Dividends above this level are taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate). So you have to take into account income tax at 7.5% on dividends over £5,000.

You can pay dividends through the year and call them interim dividends.

You can pay yourself a higher monthly salary but any figure in excess of £671 per month would result in employee and employer national insurance. Your have to weigh the cost of additional NI against tax saved because of pay below personal allowance and if the net savings are there award yourself higher salary. The personal allowance for this tax year is £11,000.

Paying yourself £871 pm instead of £671pm would cost you and your company £50.83pm.

I hope this ishelpful and answers your question.

If you have any other questions,please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 1 year ago.
Hi just 2 points, 1 of clarification and 1 a further consideration.1) As i am half way through the tax year and haven't paid myself yet, am i ok to pay myself / my wife "back pay" for earlier months, so as not to have to pay more than £671/month.
What's the best way to effect that through payroll?
2) In the above scenario, what are my legal obligations in terms of pension contributions and, directionally what is the most tax efficient way to make small monthly contributions? Do any risks accrue with regards ***** ***** pension rights from not paying NI?
Expert: replied 1 year ago.

Thank you for your reply.

There is nothing stopping you making a back payment to cover earlier months in this tax year. YOu should have registered as new employer for PAYE scheme and got PAYE reference number and accounts office number and operate RTI (real time information). This is explained here

As a new employer, HMRC may decide not to penalise you for late returns as there is no loss to Treasury.

A salary of £671 per month qualifies for National Insurance credits and pension benefits albeit your NI contribution is at 0%. More information on this can be found here

I hope this is helpful and answers your question.