Maximum Amount I Can Pay Myself

Matty5487

To give you some rough background:
I work am 15 and I work for a UK Limited Company of which my parents are the sole directors of. It was setup at the request of me so I could expand my ecommerce company. To be clear, my parents have no active involvement in the company except for when the paperwork requires it. The company's financial period ends in Decemeber with an estimated turnover at year end of £44'000 and roughly £9'000 in profit although around £2-3k of that will be tied up in stock.

As I am 15, I do not have a NI Card and Want to avoid Income Tax.
Am I correct the maximum I can pay myself without being eligable for income tax is £6,475 for the period 09/10?

Will I need to make any NI contributions bearing in mind I am still in full time education?

Thanks in Advance,
Matthew

Rolo_Tomasi

Just a couple of questions:

1. Who are the shareholders of the company?
2. Has any money been withdrawn from the company bank account for yourself? If so was this paid into your bank account or your parents.

theculverhouses

Individuals can pay themselves £6475 per annum tax free (assuming no other earnings from anywhere else and subject to certain allowances for those of the older generation). For students in full time education this can be the case too but a form P38(s) is required and ideally you would pay yourself weekly up to say £120 for the work you log. Best thing to do is to search on HMRC website for form P38(s) and look at the guidance. To do this you need a payroll scheme as well - easy to set up online though.

LucyTheDwarf

P38(s) covers students working in holiday time ONLY. It allows you to pay them wihtout deducting tax, providing the pay does not exceed the allowance, and allows you to skip the P45 / P46 procedures. It should not be used in this case.

p00hsticks

Matty5487 wrote: »

Am I correct the maximum I can pay myself without being eligable for income tax is £6,475 for the period 09/10?

Only if you have no other income - the most likely other source would be any interest earned on savings or current accounts.

Matty5487

1.Who are the shareholders of the company?
Parents have 100% shareholding in company.

2.Has any money been withdrawn from the company bank account for yourself? If so was this paid into your bank account or your parents.
No wages/salaries or payments for work have been paid from the company up to date.

Quote:
Am I correct the maximum I can pay myself without being eligable for income tax is £6,475 for the period 09/10?

Only if you have no other income - the most likely other source would be any interest earned on savings or current accounts

- I don't have a weekend job or similiar and at the moment interest shouldn't be a problem, so maximum I could pay myself from the company would be:-
£6475 minus Interest Earned from Savings in Bank minus any other income


The forms P45/P46 ring a bell but not sure if they are the correct ones.

LucyTheDwarf

P45 is a form issued when you leave an employer. It tells the tax office that you're not longer employed by that company, it tells you your pay and tax in that tax year from that company, and it tells your new employer your pay and tax with the previous employer and the tax code to use.

P46 is a form you ask an employee to fill in if they do not have a P45. It enables you to work out the most suitable tax code (and in many case the correct tax code) for the employee, until HMRC provide the correct one.

Rolo_Tomasi

First off you need to understand that, although in your eyes it is your business, legally it is in fact your parents business. The only way for you to receive an income from it at present is as an employee and, although the figures mentioned here are spot on, there are rules that need to be followed when employing someone who is under 16 - see:

http://www.businesslink.gov.uk/bdotg/action/detail?r.s=sl&r.lc=en&type=RESOURCES&itemId=1073792224

Once you turn 16 you will also have to consider the National Minimum Wage (currently £3.57 per hour) and National Insurance. If you did not want to pay any NIC then the maximum you could receive is £110 per week.

With regards to you becoming a shareholder - yes your parents can transfer some or all of their shares to you (whether you have to be 16 or 18 I don't know) however these shares will have a value and for tax purposes they would be transferred at market value even if you did not pay for them. Care would need to be taken as this could cause a capital gains tax issue for your parents.

As you can see there is much more to running a business than just making money.

James_Trimby

HI The wages you can pay are £110 pw for 2009/10 without incurring NIC or tax (or equivalent monthly figure) your problem is that, as an employee (rather than a director) NIC is done on a wages period basis not spread annually. So to take the full £5720 for this year is now difficult. You could argue that your pay period is annual (ie you only get paid once per year for your year's work) this would fit the legislation just looks a bit odd!

The P38 procedures do not apply for reasons stated in previous posts.

After you have taken out your wages dont forget that the company will be paying corporation tax on the remaining profits (2009/10 21%). The normal tax planning is that, after taking the basic salary, any surplus not needed is paid as a dividend. BUT the monies will then go to your parents and they might have to pay tax on this if either are higher rate tax payers.

I would consider looking at the legal ownership of the shares. As the company was formed for your benefit I would have advised your parents that the shares be held in a simple bare trust for you. This would allow the dividends to go to you and as you are a long way from higher rates of tax it is only the corporation tax you would pay. This is probably not important if a short term small venture but if you are hoping to grow it for the longer term might be worth sorting the share ownership I suspect the reality is that the shares are held on your behalf but best to try and document this if bigger monies are involved (should be a very simple job for a solicitor). As I am sure you are aware your parents still need to be on the paperwork as, until you are 18, you are not able to sign legal documents etc...

Rolo_Tomasi

Perhaps someone will correct me but I thought NIC was not charged until you are 16.

James_Trimby

Hi Rolo Tomasi YOU are correct under 16 do not pay NIC so is only the tax limit which is £6475 for this tax year. I think I have a rebate to claim as can definately remember being NIC'ed for a summer holiday job once (but was 25 years ago so probably time barred!)