Hi,I have a UK company which has around a 5k profit, and income (intercompany loans and management service charges) from wholly owned US subsidiaries..Is there any problem with me taking the entire amount as salary without raising any eyebrows at HMRC and therefore reducing final profit to zero and creating a zero tax liability.I'm just not sure whether the salary rate needs to be justified in some way? I have no other income to consider.
System of Law: England-and-Wales
Im happy to assist.Will get back asap - this afternoon. let me know if its ok with you.
Thanks for the patience. I guess you have a private limited company. One of the advantages of a private limited company is the flexibility of being able to determine the proportions of salary and dividends taken compared. The GENERAL principle is: to maximise the level of tax saving, the director should take a relatively low salary (say upto equivalent to the standard personal allowance of £7,475) and pay the balance of any other income in dividends. This will minimise the amount of tax and national insurance payable – primarily because national insurance is not payable on dividends. In each of the above examples, the director is paid a salary £7475 and the remainder of the profit is paid as a dividend. If all or the majority of the income was paid out as a salary then the owner would end up considerably worse off than if they had been operating as a sole trader. From your question it appears you have 5k profit, and income from intercompany loans and management service charges??. You can decide what portion you want to pay yourself as salary without raising any eyebrows at HMRC as this is legal as explained above. Im not sure what other income you have (your last statement says you have no other income) hence you wont get any tax charged if you pay yourself £5k standard personal allowance of £7,475. However it is extremely important to ensure that in the case of having other income, you extract low salary: high dividend. to increase tax savings.
Chartered Accountant >20 years + Qualified IFA