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Directors and National Insurance
Posted by Anonymous on Fri, 29/01/2010 - 13:17
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.
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.
@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.
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
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
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.
spike
quite right! and ...the personal tax allowance is not wasted!
Pension contributions
Surely with a company you would go for employers contributions, which I believe are not salary dependant?
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
NMW?
Only if there is a contract of employment. Otherwise, a director can take a salary of £1 pa without falling foul.
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
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.