TIER1 EXTENSION--LOW SALARY+ DIVIDENDS

[rahulbsp]

Hi.
I am planning to apply for tier1 extension as salaried employee (director of my limited company). I need to show around 26000 to gain sufficient points.I am planning to show 7500 (bare minimum ) as salary and 27000 as dividends. My worry is like self employed applicants need to show some minimum NI contribution ,is there anything similar for employed applicants i.e. do they have to show some minimum amount of salary or NI contribution or tax.

[goldfish]

Provided you are paying tax (e.g. NI), that should be fine. When I submitted my application the NI payments were very small because the company had only been running for 6 months so not much salary had been paid. I put post-it flags on my limited company bank statements to show the NI payments (I think there was only one) and my application was approved.

(That was HSMP extension not Tier 1 so might be slightly different.)

[AccountantMatthew]

I know I’m going off topic a little here but here are a couple of notes on presumably why the self employed have to show part of their NI contribution:

When self employed you pay different classes of National Insurance to when you are an employee/officer - so you pay class 4 NI on profits and class 2 NI which is a flat rate paid weekly (and which you have to show on your application). When employed, you pay class 1 NI.

Class 4 NI is paid through your self assessment return, which you need to complete when self employed if given notice to do by HMRC - so you can prove that you pay your that class of NI if required.

However with class 2 NI, you have to separately arrange to pay that with HMRC so I'm assuming that class 2 proof gets asked for by UKBA so that you can demonstrate that you comply with all tax/NI requirements.

With salary and dividends you will pay tax/NI via the PAYE system through the calculation of your pay via your payslip. Any tax payable on dividends will usually be paid through you filing a self assessment tax return.

However if there is no tax or NI to pay on your income level then at least from a tax compliance point of view you are doing nothing wrong - the main thing is that you are paying the correct amount. UKBA look at the income levels so if you happen to structure your income to maximise your tax efficiency and pay no tax or NI then fair enough!

[ilrtier1]

I think AccountantMatthew is right. I have heard from another accountant also personally, that a limited company director can take minimum salary. Some guys take only minimum salary(around £5700) per year to increase take home. And I think eventhough they are not paying NI with this low salary, that is legal. And this kind of situation may not be questioned by home office, as not illegal. I haven't heard of such a situation till now.