NI question for divends

Thomas_Holding

A friend has a company and their accountant has advised them to take all the money as dividends and not as salary.
Is this wise? They haven't paid NI for many years and if they continue working for this company they could end up not having a pension.

What do people think?
They are in their late 30s but have only worked in the UK for four years.

Jeremy535897

The most straightforward way to deal with this issue is to take a salary of the secondary threshold of £8,840 for 2021/22, as that avoids both employee and employer NIC, but counts for pension purposes.

Thomas_Holding

Jeremy535897 said:

The most straightforward way to deal with this issue is to take a salary of the secondary threshold of £8,840 for 2021/22, as that avoids both employee and employer NIC, but counts for pension purposes.

Can they do that if they are directors? I thought that would have to be a bit more?

[Deleted User]

Thomas_Holding said:

Jeremy535897 said:

The most straightforward way to deal with this issue is to take a salary of the secondary threshold of £8,840 for 2021/22, as that avoids both employee and employer NIC, but counts for pension purposes.

Can they do that if they are directors? I thought that would have to be a bit more?

Yes - minimum wage legislation does not apply to directors.

DoctorStrange

Jeremy535897 said:

The most straightforward way to deal with this issue is to take a salary of the secondary threshold of £8,840 for 2021/22, as that avoids both employee and employer NIC, but counts for pension purposes.

Also reduces Corporation Tax to take a salary

@ OP

Does your friend know about IR35 and the implications? This may not be applicable but can be expensive to get wrong so best to be 100% sure.

Thomas_Holding

DoctorStrange said:

Jeremy535897 said:

The most straightforward way to deal with this issue is to take a salary of the secondary threshold of £8,840 for 2021/22, as that avoids both employee and employer NIC, but counts for pension purposes.

Also reduces Corporation Tax to take a salary

@ OP

Does your friend know about IR35 and the implications? This may not be applicable but can be expensive to get wrong so best to be 100% sure.

I doubt very much that they do.  I don't think IR35 is applicable they have to provide all their own materials etc.  Very different from an IT contractor.

lisyloo

If they are running a Ltd company the it’s good to take a small salary to get NI credits but pay NI (this is around £9k). Then either salary sacrifice to pension and/or dividends.

dividend tax is lower than income tax
salary sacrifice has additional tax benefits if they can afford to tie up money until retirement but of course people also need money to live on so most do a combination.

does he have a spouse?
the spouse can also possibly be a director and take dividends (if they are a lower rate tax payer).

[Deleted User]

lisyloo said:

If they are running a Ltd company the it’s good to take a small salary to get NI credits but pay NI (this is around £9k). Then either salary sacrifice to pension and/or dividends.

dividend tax is lower than income tax
salary sacrifice has additional tax benefits if they can afford to tie up money until retirement but of course people also need money to live on so most do a combination.

does he have a spouse?
the spouse can also possibly be a director and take dividends (if they are a lower rate tax payer).

The spouse would also have to be a shareholder. 

lisyloo

Yes correct, but not necessarily an employee.
my spouse was strongly advised to keep a controlling share i.e. > 50%

Thomas_Holding

lisyloo said:

If they are running a Ltd company the it’s good to take a small salary to get NI credits but pay NI (this is around £9k). Then either salary sacrifice to pension and/or dividends.

dividend tax is lower than income tax
salary sacrifice has additional tax benefits if they can afford to tie up money until retirement but of course people also need money to live on so most do a combination.

does he have a spouse?
the spouse can also possibly be a director and take dividends (if they are a lower rate tax payer).

Actually I left out the detail it is a couple and both work for the company.  I thought that would add to get confusion.