Eg Say you pay yourself £4,000 Salary - no tax (or NI) as below your personal allowance and the rest in dividends then you dont pay income tax - the company would already have paid the corporation tax on the dividend.
While true this is likely to raise a few suspicions in the Inland Revenue
I'm not sure about that - I was under the impression that it was standard practise for this type of company... the accounting advice I'm getting is that it's OK with the IR.
can also mean problems if you want a loan at any stage (dividends are often not counted as a source of income for mortgages, bank loans, credit cards etc).
This is definitely the case.
It think its called IR57 but cant be sure
You're thinking of IR35 maybe? This only applies in certain circumstances - it's intended to catch contract workers (mainly IT contract workers) who do all their work for one client (at a time), but used to be able to bill as a ltd company and pay themselves in dividends, exactly as we've been discussing. IR35 stops them from doing that by treating them as employees, but it doesn't apply if you have multiple clients at the same time: [hmrc.gov.uk...] [hmrc.gov.uk...]
If you can answer ‘yes’ to the following questions, you would probably have been an employee of your client for the contract in question and therefore within the new rules.
Do you work set hours, or a given number of hours a week or a month? Do you have to do the work yourself rather than hire someone else to do the work for you? Can someone tell you at any time what to do, when to work or how to do the work? Are you paid by the hour, week or month? Can you get overtime pay? Do you work at the premises of the person you work for, or at a place or places he or she decides? Do you generally work for one client at a time, rather than having a number of contracts?
If you can answer ‘yes’ to the following questions, you would probably not have been an employee of your client and therefore outside the new rules.
Do you have the final say in how you do the work for the client? Can you make a loss on the contract? Do you provide the main items of equipment you need to do the job for the client, not just the small tools many employees provide for themselves? Are you free to hire other people on your own terms to do the work you have taken on? Do you pay them out of your own pocket? Do you have to correct unsatisfactory work in your own time and at your own expense? Do you have a number of customers at the same time?
("new rules" = IR35)
Company Directors dont have to pay themselves minimum wage.
I think that's right, as long as they don't have a written contract of employment (I'm told).