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Directors and National Insurance

Can anyone tell me the implications of a director not paying NI? Thinking of incorporating my business, but not sure of the impact of not paying NI through earning divis rather than salary. Any help appreciated.

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usually

you pay yourself enough to meet the threshold for NI, thereby protecting any benefits. The figure is quite low  but check out the formalities with your accountant or person who will do your payroll.

Do be aware that if you have any insurance that is income related eg personal accident or similar you may find if the worst happened they do not pay out re the divis. Also of course paying divis limits potential to pay into pension schemes.

 

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Directors/ NI conts

I don't see why dividends affect pension contributions.  This used to be the case until a few years ago, but nearly all income counts.

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@beancounters

Presumably you don't advise on tax? Subject to £3,600 de minimis, an individual cannot contribute more than his/her earnings. Dividends are not earnings.

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Rather blunt

Beancounters is sort of correct - the level of an individual's personal pension contributions is completely unaffected by level of income - earnings or otherwise, only the tax relief is. But then again, he does refer to 'most types of income', suggesting that he was in fact thinking of relievable contributions. In any event, there are not that many who contribute more than the relievable amount (certainly none of my tax clients do)

 

PC

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Lose out on some state benefits

You would lose out on some state benefits, and so this is why it is recommended that you pay a salary just above  the Lower Earnings Level for NICs.

Considerable more on this topic, see: www.rossmartin.co.uk

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Sensible balance

I would have thought that with a salary circa £6K per annum, the employee gets state benefit entitlements, can make £6K tax relievable pension contribution and the emploer will get tax relief on the salary and can make tax relievable pension contributions to match salary and dividends.

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spike

quite right! and ...the personal tax allowance is not wasted!

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Pension contributions

Surely with a company you would go for employers contributions, which I believe are not salary dependant?

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Minimum Wage

All the above is good advice to pay minimal NI but be aware of falling below the minimum wage hourly rate otherwise you could expose your company to prosecution

 

Moneyinsight

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NMW?

Only if there is a contract of employment. Otherwise, a director can take a salary of £1 pa without falling foul.

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Have a look here

On page 8 of the following guide you will find details of how to deal with this question:

 

Accounting & Taxation for Small Businesses

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Level of NIC's

Nichola,

Don't you really mean to pay just below the Earnings Threshold?

All other things being equal, this would use more personal allowances and give more CT relief than the way you suggest.

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Employer pension contributions.

This is the key point surely.  Isn't the discussion of employee contributions irrelevant when you can make unlimited employer contributions and the company can get full tax relief as long as they are "wholly and exclusively for the purpose of the trade"?  I would imagine that most employer contributions can be justified for a small business on these grounds.

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Directors NI

Why are Directors still treated differently to any other employees when it comes to calculating NI?

I have never had a sensible reply to this question.

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Directors NI

Because a director may have authority to influence their own pay, and when it is paid.

Example: a normal employee receiving a lump sum gross payment of £12,000 in one month would result in lower Employees NI than if £1000 were paid each month.

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NIC Payments

You should still pay yourself a small salary, currently around £576.00 per month in order for NIC to be calculated and pay the rest as

a dividend. This is generally acceptable by HMRC and details of the coming tax year can be found on HMRC website.

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Not £576 per month

Paying £576 per month would trigger Class 1 primary and secondary contributions.

In order to avoid paying NIC the salary needs to be above the Lower earnings limit but equal to or below the primary threshold, currently £5,720 per annum. This retains entitlement to state benefits.

A salary of £476.25 achieves this.

However, paying a personal allowance salary of £6,475, whilst triggering a small NIC liability for employee and employer, results in virtually the same tax position for a director/sole shareholder. The extra NIC cost is almost entirely offset (to within 85p) by the corporation tax relief on the extra salary above £5,720 and the Class 1 secondary contributions.

Malcolm Greenbaum

Director, Greenbaum Training and  Consultancy Limited

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clive

If salary paid is nil or the minimum before NI becomes payable, surely pension contributions can be made by the company as salary sacrifice - and this would mean earnings = contributions therefore all allowable.

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