Sign in

Courtesy navigation

Forum - Dividend payment to directors and employees

Dividend payment to directors and employees

Sun, 01/08/2010 - 20:13 — blahson

I am thinking of starting a company with 10 people. 3 will be directors and the other 7 will be employees of the company.
The company is self-funded and all 10 people will put in an equal amount. Hence the company will be split into 10 equal shares. The company will be private limited.
However when it comes to salary I am having some problems. To reduce tax bills we have decided to pay dividends from the shares (obviously when in profit). I know that the directors (even though they are employees) can be paid a wage of say £6475 (tax allowance) but I believe that normal employees have to be paid national minimum wage (approx £11300). Now we have a problem as the 7 employees are being paid more than the directors and when it comes to paying a equal dividend I cannot correct this imbalance.
The reason for wanting to pay only the £6475 is to reduce the tax bill and in times of reduced profit reduce the salary bill.
I think (correct me if I'm wrong) that employees have to be paid national minimum wage ? Is this also the case if in their terms and conditions they agree to a salary of £6475 ?

Any help on this matter would be appreciated.

Add this
elaine@cheapaccounting.co.uk's picture

Gosh - I have to say that on initial view this looks complex and open to a plethora of future issues.

I would advise getting some specific advice on your tax planning requirements from an accountant but as a start couple of things:

• Employees must be paid NMW regardless of their T&Cs – i.e. they cannot opt out of it

• Your can earn up to £110 / week without NI payments

Mon, 02/08/2010 - 08:50 — elaine@cheapacc...
k Matt's picture

I'm sure you'll have already looked at HMRC's site but if not here is a good starting point:

http://www.hmrc.gov.uk/paye/payroll/day-to-day/nmw.htm

Nothing is stopping you taking on the directors as employees too by the way.

Mon, 02/08/2010 - 07:43 — k Matt

Add a comment

Not registered? We'll create a new account for you when you add your comment

  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <p>
  • Lines and paragraphs break automatically.

Create an account

Not registered? We'll create a new account for you when you add your comment.
Account information
Your name on the Donut websites
Personal information
Your first and last name, please
We'll send your registration details here
Just the first part - eg SW17
Not in the UK? You can still leave comments:
I would like to receive the My Donut e-newsletter
Type the characters you see in this picture. (verify using audio)
Anti-spam check - enter the characters you see

When you click 'Register' to create a new account, you accept our terms of service and privacy policy

We monitor conversations on the Donut forum. Please see our terms and conditions of use.