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Replies to Queries -- 4

20 June 2001
Issue: 3812 / Categories: Forum & Feedback , IR35
Salary or dividend?

As a result of the changes to income tax National Insurance and corporation tax rates trading through a company can reduce a tax and National Insurance bill substantially when compared to self employment provided a person draws an unrealistically low salary.

I learned while training that if a salary was unrealistically low the Inland Revenue could deem dividend payments to be salary. More recently I heard of one firm telling its clients that they should (a) pay themselves realistic salaries and (b) dividends paid more frequently than quarterly ran a risk of being deemed remuneration. However I can find no mention of any such rules in the legislation or even in say Tolley's Tax Planning beyond a mention of the national minimum wage. Now personal pension contributions of up to £3 600 can be paid without reference to...

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