I’ve been a bit overly busy to actually write a blog recently. Thanks to Christie Malry for reminding me I have one…
One of the things that I thought I might put here is a little response to the remark made by Richard Murphy regarding me “cooperating with an unnamed person claiming to be a chartered accountant on the web”.
Personally, I took that as being aimed at me. The ethical dubiousness attaching itself to the cooperation with, rather than the being a, chartered accountant. Presumably the unnamed part doesn’t help.
I don’t think that it really matters. It was really a bit of banter on twitter as far as I was concerned and given that the calculation attached to a hypothetical personal service company, I completed a hypothetical engagement letter, performed hypothetical money laundering checks before issuing a hypothetical engagement letter and then submitting a real 64-8 to HMRC for “A Completely Hypothetical Company Limited”.
I checked Companies House. There is no “A Completely Hypothetical Company Limited”. I also headed the letter “taking the piss” before I sent it to HMRC.
Anyway, administrative duties and risk management being done, I decided that maths is maths, and Murphy was incorrect and being a tad hypocritical. Not that Chas Roy-Chowdury was correct (in his original article), but Murphy’s criticisms, as Christie Malry points out, are arguably applicable to him.
Most people on the internet are unnamed and could be anybody as far as I’m concerned. It doesn’t mean that when they make a point it is any less valid than if they were a named person standing next to me with their passport in their hand.
At first all I did was post a link to the blog, because I felt it was obvious to any accountancy or tax professional that Murphy’s calculations were wrong, and they would see the irony.
I had a chat with a couple of people on twitter, including Christie and had a quick go at the calculations. When you think somebody is wrong, it’s probably best to make sure not just that they’re wrong, but you know why they’re wrong.
In my opinion, in Chas’ original article, and in the corrected version, the figure for the tax paid on PAYE is incorrect insofar as it is used for comparison purposes.
The comparison isn’t like-for-like.
One is for £200,000 of salary from the company, not including employer’s NICs, which would cost an additional £26,566 in NICs, the other is for £200,000 of income to the company.
The company would need income of £226,566 to pay the salary without making a loss.
A far better way of comparing the efficacy of the two options is the way which Christie did, which is to look at £200,000 of income to the company and see what the shareholder receives at the end by either salary or dividend.
I’m talking about the sort of calculation you would actually perform for remuneration planning purposes.
And for anybody looking for bonus points, yes, you should pay out salary of £7,488 to optimise the calculation.
PS I notice this blog has been now linked to from Tax Research UK. Please read this Tax gap corporation tax rate analysis