2008/09 Salary Recomendations

As you will probably know there were some political shenanigans a few months ago over the abolition of the 10% tax band, and the Government were forced to increase personal allowances.

Original 2008/09 personal allowance level - £5,435

Revised 2008/09 personal allowance level - £6,035

How does this impact on recommended salary levels for company directors and salaried spouses?

In recent years the entry point into the tax and National Insurance system has been aligned, and originally this carried on into 2008/09. However the revision from £5,435 to £6,035 refers only to tax, not NI, so the link is broken.

From the perspective of a typical client of Garbetts there is no merit in increasing a £5,435 salary to £6,035 as the tax saved is outweighed by NI incurred –

Eg a company secretary was salaried at £5,435. If thats increased to £6,035, a increase of £600 then NI of £136 is incurred – the saving in Corporation Tax on a £600 salary increase (including relief on employers NI) would be £141, a negligible difference. This assumes the secretary has no other income (other than company dividends) – if they did they extra £600 allowance could be used there rather than being wasted so, in fact, a increase salary would be a real cost of £136.

With the above in mind, our original 2008/09 salary recommendations remain unchanged:

- company director non PSC £5,436 pa (£453 per month)

- company director PSC £8,000 pa (£666.67 per month)

- spouse / company secretary not working elsewhere £5,436 pa (£453 per month)

NB the higher recommended salary for PSC (Personal Service Company) directors reflects the higher risk factor PSCs have with respect to IR35 and similar – this is, however only a recommendation and clients are, of course, free to select a lower or higher salary level.

Please direct any queries on the above to your account manager at Garbetts.