Directors, beware national minimum/living wage legislation

Source: HM Revenue & Customs | | 26/07/2017

Private company director-shareholders using tax effective income strategies that involve paying themselves minimum salary and maximum dividend do not generally concern themselves with employment legislation in relation to the minimum wage.

Company directors who do not have a contract of employment with their own company are defined as officeholders. Officeholders are neither employees nor workers and are consequently not directly affected by the National Minimum Wage (NMW) or National Living Wage (NLW) legislation.

However, company directors who also have an employment or worker's contract can be both an officeholder and an employee at the same time. If this is the case, the director would need to be paid according to NMW or NLW rules.

Where there is a requirement to pay a director the NMW or NLW, this would potentially affect adversely the strategy to pay a director’s salary at a minimum level that qualifies the director for state benefits but does not involve payment of any NIC's. Careful consideration needs to be given in these cases, especially to directors of personal service companies to ensure the correct tax treatment is in place, whilst at the same time considering the implications of employment law and the minimum wage legislation.

If you need advice in this area/ particularly if you have a contract of employment between yourself and your private limited company, please call for more information.


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