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Getting It Out – Honorarium

Honorarium

Income Type

Earnings Income

Company Impact

Normally tax deductible against corporation tax unless excessive.

Individual Impact

Income Tax due
National insurance due

How much?

Any amount up to the point at which Secondary Class 1 National Insurance is due (£5035 pa in 2006/7 – the same as the personal allowance).

The honorarium needs to be above the Lower Earnings Limit if it is to count towards State Benefits (£4368 pa in 2006/7)

The honorarium can be paid at whatever interval you fancy. An annual lump sum on April 6th reduces the PAYE paperwork to an absolute minimum.

However if you are a woman needing to do some Statutory Maternity Pay planning then you may want your honorarium in monthly or weekly chunks.

How it works

The honorarium is only available to officers and employees of the company, who are almost certainly going to be shareholders as well.

The honorarium is my name for the ‘low salary’ of the low salary/high dividends system. In my view it better describes the payment – which an officer or employee would only accept for two reasons

  1. To use up the personal tax-free allowance where the individual has insufficient Earnings, Property or Savings income.
  2. To protect the individual’s right to state benefits – primarily the Retirement Pension.

For example, if you had Home Responsibility Protection (because you get Child Benefit in your name) and other income that used up the personal tax-free allowance (and the 10% band), then you would not accept the honorarium.

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