From: Ronald Raygun 
Subject: Re: Move from Ltd Company and Self Assessment to PAYE advise needed
Newsgroups: uk.finance
Date: Sun, 20 Aug 2006 22:37:20 GMT

jjuk2k2 wrote:

> I am currently sole director of a small limited company that is turning
> over about £40K a year. My wife is employed on a basic wage by the
> company to use up her tax allowance as she has no other income. I am
> currently sub contracting myself to another company to do effectively a
> full time job (40hrs a week) and get paid by invoice (this is the bulk
> of the company turnover).

That sounds rather as if you fall under the IR35 rules.

> My wish is to move to a PAYE employee of the other company and possibly
> wind up my Ltd company.
> 
> My biggest worry is that I need to get approx £3000 per month after
> tax to live on and on the PAYE model that is a stupid salary... Is
> there a good way to get the physical cash I require while minimising my
> tax liability?

Remember that at the moment neither you nor your "employer" is paying
National Insurance Contributions.  So if you want to earn the same
net amount, your employer will have to find substantially more than
40k to pay for you.

If at the moment the 40k pays you and your wife a 5k tax free salary each,
then your company pays 19% CT on the remaining 30k which you then take as
tax free dividends.  Hence your combined net income should be 34.3k pa
("approximately 3k pm").

To earn the same net amount under PAYE, I estimate you would have to
earn nominally around 48.4k, which will actually cost your new employer
about 53.9k.

I suppose that could be regarded as "stupid".  Realistically, you would
have to reach a compromise.  Instead of costing them 14k more, suggest
they may like to find 7k more, and this means your net income goes down
by about 4.2k.  Then send the wife, who would then no longer be "running
your office" for 5k pa, out to earn 4.2k running someone else's office.