I Understand That An Effective Tax Strategy For An Owner Managed Company Is For The Director To Take A Low Salary With Minimal National Insurance And To Take Everything Else In Dividends. However, Is There Not A Problem With The Minimum Wage Legislation?
The Taxman has made it clear that the minimum wage legislation only applies when there is an explicit contract of employment between the company and the director. Therefore, to avoid the minimum wage legislation it is simply a case of ensuring you do NOT have such a contract in place. In most small companies this would be the position anyway. When adopting this strategy you must ensure proper procedures are followed when paying dividends or there is a risk of it being attacked by the Taxman. It’s also the case the the minimum wage legislation doesn’t apply to family members but in the case of a Limited Company it does not have any family members and so to keep the salary of a spouse at a low level you should consider making them a director.