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Directors Payroll

KaelaHKaelaH Well-KnownFMAAT, AAT Licensed Accountant Posts: 131
in General accounting discussion
I think I must be missing something. I always thought that you pay a Director just above the LEL for NI so that they make small contributions then, given that there are sufficient profits, take the remainder of earnings as dividends.
What I don't understand is that I have recently taken on Payroll & BookKeeping for a new client and the 2 directors currently take £4000pa as salary. Surely this doesn't cover them for NI credits and is just a nominal amount for no real benefit.

Please, am I missing the point? Please could somebody explain this to me once and for all as its driving me mad lol!

Thanks in anticipation :)

Comments

  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    You aren't missing the point. No idea why they are being paid 4k unless they have 2-3k of other personal income, in which case the only benefit is the CT saving.

    Current optimum salary is £602.33 per month.
  • Anne BoleynAnne Boleyn Well-Known Registered Posts: 196
    Director salary

    Hi Monsoon

    I thought the optimum was £589.33 a month? Just under the £7072 NI threshold.
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    I worked out that overall you're about £14 a year better off if you pay to £139 a week not £136, even after the small bit of Employers NI
  • MoneySavingBankMoneySavingBank Well-Known Registered Posts: 143
    I think there are other issues you need to look at

    Hi,

    I am not sure about it. But I am making a wild guess. I think your directors are coming from different angle to benefits. Would you mind to ask them why do they want to pay themselves so low salary? Sometimes, they instruct you after talking to their so called friend regarding benecits.

    I think your cleint is living in a council housing/ rented housing and claiming housing benefit. Most importantly, I think they are worried about Child Tax Credit. If they pay themselves more than certain amount of money, they will loose a proportion of child tax credit and ...

    Please keep up updated on this. It looks another interesting case.

    Regards,

    MSB
  • KaelaHKaelaH Well-Known FMAAT, AAT Licensed Accountant Posts: 131
    I doubt very much that my client has any idea the reasons why this is the amount they are earning. I do not get the impression that they are on housing benefit but not so sure about CTC as they do have small children.
    I think their previous bookkeeper or current accountant have come up with the figure and, from what I understand, its been the same for some time. Maybe it was once the optimum figure!? I will get to the bottom of it though as it certainly isn't the most effective way of accounting for earnings.
    Also, what implications could it have for my client in the long run if they've not been paying NI?
    Thanks for your help
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