On another forum we have a chartered accountant and the same sorts of comments about paying themselves through limited companies were flying about. However, it seems that it's nowhere near as straightforward as it appears. From her:
No, because everyone witters on about 'paying themselves at 20%' it but, in almost all cases quoted (which are referring to higher rate payers), it is wrong.
If turnover goes into a company (and doesn't fall foul of IR35) and it generates small company profits, the Company does, indeed, pay about 20% in tax on it. BUT the money is still in the company. A Director, if he wants to get his hands on it, spend it on himself, has to get that money OUT of the company.
For someone like George Osbourne who has a large ministerial salary, if the company pays him a salary or a bonus he will pay income tax at his marginal rate. Depending on the amount the company may have to pay employers NIC. If the company pays him a dividend - he will pay a higher rate of dividend tax on it. Of course, he can take nothing out, pay no more tax, maybe have some pension provision, or his wife may be involved in the company and the company only pays a low rate but that cannot be correctly described as 'paying himself'.
The company route for high earners is often, if available, the best route tax wise but it ain't at what people quote : 20%.
(This is different for low and middle earners)"
"It's not a scam. HMRC fought the principle all the way to the top of our courts in the Arctic Systems case and lost. If he is not a basic rate taxpayer he will be paying a higher rate dividend tax. People assume it is the same for everyone - including George Osbourne, who very clearly isn't a basic rate payer.
The actual cost of a dividend for higher rate payer is NOT just the corporation tax. They pay an additional 32.5% to 42.5% less tax credit (depending on how high their income is). As I said, the company vehicle is likely to be the better option tax wise, but it does NOT cost a total of 20% (if in higher rates) it is much, much higher than that.
HMRC never liked losing Arctic Systems and Labour pledged to sort something but they never could find a workable solution. It's not a scam, it's the legislation and case law as it stands."