Most tax-efficient wage for single-director-owner-employee micro-company?

mrodent33

Each year for several years I have been paying myself the Primary Threshold (currently £12570) as a wage, in classic micro-company fashion. My accountant (who only deals with the accounts of the company, not my personal accounts and tax matters) explained to me a couple of years ago that, although there is now a gap between the PT and the Secondary Threshold (£9100) on which employer NI is payable, it can be more tax-efficient to pay the employer NI on the difference anyway, essentially because the wage reduces the corporation tax, currently 19% for my company. So this would make £478.86 in employer NI, according to my calculations.

However, matters are slightly different this year and probably always will be from now on. Over the past year I received several 00s of 000s of £ as an inheritance, and most of this is now sitting in GIA accounts. I have paid myself, through the company, a director's SIPP contribution of £60k, by lending the company a lot of my own money.

The company will probably never make a profit again, due to future such SIPP payments, and will probably never pay me a dividend again (I'm 63). If I pay myself a wage of £9100 there will be no NI, and the difference between £9100 and £12570 (income tax personal allowance, PA) will certainly be made up from dividend income received from my GIA accounts. However that relief will thus only be at 8.75% for the segment of my 24-25 income between £9100 and £12570.

If I pay myself £12570 as a wage, conversely, I shall be paying 8.75% on all income received from (GIA) investment dividends (and from bank accounts, fairly minimal). So the company would pay £478 more as NI and I would pay (12570 - 9100 = 3470 x 0.0875 = ) £303 more in dividend-derived income tax. The primary benefit would be that more money would be extracted from the company. But the company doesn't really have any assets due to the loans I have made to it, and which it will possibly be paying back (to me!) until it is shut down.

It seems that in my situation I should probably pay a wage of £9100, and resign myself to not mopping up all £12570 PA at a high-ish (20%) rate of relief. Or maybe I should pay something between the two figures, e.g. £10000 ...

Anyone have any thoughts on the most tax-efficient solution for me in my circumstances?

DullGreyGuy

Speak to your accountant, they can look at your personal situation too for a one off consultancy fee.

Not sure if you are forgetting about the Employment Allowance or if there's a reason it wouldn't apply to the company?

mrodent33

DullGreyGuy said:

Speak to your accountant, they can look at your personal situation too for a one off consultancy fee.

Not sure if you are forgetting about the Employment Allowance or if there's a reason it wouldn't apply to the company?

Thanks.

I suspect it's not such a complex case that I need to do that. I'm just posting here in case anyone flags a "gotcha" I hadn't thought of. Also my accountant has been a bit cagey in the past, suggesting I talk to an "independent financial adviser" about personal tax matters. That ain't happening.

Employment Allowance: my understanding is (backed up by a search I did a few minutes ago) is that this does not apply to single-director companies: there must be be at least 2 directors for a company to qualify, unfortunately.

Dazed_and_C0nfused

mrodent33 said:

DullGreyGuy said:

Speak to your accountant, they can look at your personal situation too for a one off consultancy fee.

Not sure if you are forgetting about the Employment Allowance or if there's a reason it wouldn't apply to the company?

Thanks.

I suspect it's not such a complex case that I need to do that. I'm just posting here in case anyone flags a "gotcha" I hadn't thought of.

Employment Allowance: my understanding is (backed up by a search I did a few minutes ago) is that this does not apply to single-director companies: there must be be at least 2 directors for a company to qualify, unfortunately.

Where have you read that 🤔

mrodent33

Where have you read that

Horse's mouth: https://www.gov.uk/claim-employment-allowance/eligibility

You also cannot claim if your company has just one director and that director is the only employee liable for secondary Class 1 National Insurance.

Dazed_and_C0nfused

mrodent33 said:

Where have you read that

Horse's mouth: https://www.gov.uk/claim-employment-allowance/eligibility

You also cannot claim if your company has just one director and that director is the only employee liable for secondary Class 1 National Insurance.

I have read that and plenty of other guidance but nowhere (including the guidance you refer to) have I seen this specified.

there must be be at least 2 directors for a company to qualify

DullGreyGuy

Dazed_and_C0nfused said:

mrodent33 said:

Where have you read that

Horse's mouth: https://www.gov.uk/claim-employment-allowance/eligibility

You also cannot claim if your company has just one director and that director is the only employee liable for secondary Class 1 National Insurance.

I have read that and plenty of other guidance but nowhere (including the guidance you refer to) have I seen this specified.

there must be be at least 2 directors for a company to qualify

In the link provided near the bottom it states:

Who cannot claim Employment Allowance

You cannot claim if you’re a public body or business doing more than half your work in the public sector (such as local councils and NHS services) - unless you’re a charity.

You also cannot claim if your company has just one director and that director is the only employee liable for  secondary Class 1 National Insurance.

So it doesn't have to be 2 directors but does need a second person employed thats liable for secondary class 1 NI.

Assuming the second person was a spouse etc just to reduce tax etc then you'd probably make them a director to avoid needing to have auto-enrolment pension

mrodent33

Dazed_and_C0nfused said:

I have read that and plenty of other guidance but nowhere (including the guidance you refer to) have I seen this specified.

there must be be at least 2 directors for a company to qualify

Got it. My bad. But a company in my circs, as per thread title, "single-director-owner-employee micro-company" does not qualify ... right?

Dazed_and_C0nfused

DullGreyGuy said:

Dazed_and_C0nfused said:

mrodent33 said:

Where have you read that

Horse's mouth: https://www.gov.uk/claim-employment-allowance/eligibility

You also cannot claim if your company has just one director and that director is the only employee liable for secondary Class 1 National Insurance.

I have read that and plenty of other guidance but nowhere (including the guidance you refer to) have I seen this specified.

there must be be at least 2 directors for a company to qualify

In the link provided near the bottom it states:

Who cannot claim Employment Allowance

You cannot claim if you’re a public body or business doing more than half your work in the public sector (such as local councils and NHS services) - unless you’re a charity.

You also cannot claim if your company has just one director and that director is the only employee liable for  secondary Class 1 National Insurance.

So it doesn't have to be 2 directors but does need a second person employed thats liable for secondary class 1 NI.

Assuming the second person was a spouse etc just to reduce tax etc then you'd probably make them a director to avoid needing to have auto-enrolment pension

True.  But no actual requirement or need to have 2 directors.

DullGreyGuy

mrodent33 said:

Dazed_and_C0nfused said:

I have read that and plenty of other guidance but nowhere (including the guidance you refer to) have I seen this specified.

there must be be at least 2 directors for a company to qualify

Got it. My bad. But a company in my circs, as per thread title, "single-director-owner-employee micro-company" does not qualify ... right?

That would be my understanding and hence my original statement "unless you dont qualify"... the mechanism of the title wasnt abundantly clear to me so hence the carve out

Dazed_and_C0nfused said:

DullGreyGuy said:

Dazed_and_C0nfused said:

mrodent33 said:

Where have you read that

Horse's mouth: https://www.gov.uk/claim-employment-allowance/eligibility

You also cannot claim if your company has just one director and that director is the only employee liable for secondary Class 1 National Insurance.

I have read that and plenty of other guidance but nowhere (including the guidance you refer to) have I seen this specified.

there must be be at least 2 directors for a company to qualify

In the link provided near the bottom it states:

Who cannot claim Employment Allowance

You cannot claim if you’re a public body or business doing more than half your work in the public sector (such as local councils and NHS services) - unless you’re a charity.

You also cannot claim if your company has just one director and that director is the only employee liable for  secondary Class 1 National Insurance.

So it doesn't have to be 2 directors but does need a second person employed thats liable for secondary class 1 NI.

Assuming the second person was a spouse etc just to reduce tax etc then you'd probably make them a director to avoid needing to have auto-enrolment pension

True.  But no actual requirement or need to have 2 directors.

As is said in the line above which you didnt embolden. If its 1 director and 1 employee there is however a requirement for to have auto-enrolment pension in place even if the 1 employee has opted out of enrolment.