One way that shareholders of companies can avoid a large tax bill is by paying themselves mostly dividends and a low salary at a sufficient level so that National Insurance benefits can still be claimed (currently between £90 and £105 per week). The problem with this is that companies are, in a large number of cases, falling foul of the National Minimum Wage rules.

It is possible to avoid this in the case of Directors by ensuring that a Director is not classed as an “employee”. If you are paying a low salary and high dividends to a Director, you should ensure that there is no employment contract in place. A Board Minute should record the fact that he is being paid as an office holder of the Company and not as an employee or worker. There should be no reference in any of the Company’s records to imply that there might be an employer/employee relationship. This also applies to any family members who are shareholders and who have been appointed as office holders, for example a company secretary.

Brought to you by Smith Emmerson, Nottingham accountants