Directors pay adjustment from 1k to the magic 833.33
It's all a bit of a minefield for a non-accountant learning as they go - NIC payments, £2k NIC allowance, corp tax, income tax etc.
We recently got our first years books back from our accountants and she advised that paying £1k/mth wage to myself and business partner (as directors) was inefficient, I should pay £644. So I did some reading and found that in fact with NIC allowance and only two employees currently (both directors) it would be better to pay £833.33 or thereabouts.
The difficulty for me (doing payroll and understanding all this) is I've already paid the first 3 months wages of the year at £1k (I think we get about £916 of that, £40 ish NIC and the rest income tax) and now I'm not sure if I should make an adjustment for 1 month (lowering the wage) before going onto £833 so total annual salary is 10,000 or less (being aware of the £10/k personal allowance)?
Yesterday I paid £834.00 each, £20.52 each NIC (£813.48 cleared each) and no income tax using our PayRoo software. We're signed up for the £2k NIC employers allowance a while back, so I only ended up paying the HMRC £41.04 just for NIC for employee instead of something like £80 for us both NIC and another £60-80 for income tax (I forget how much). Quite a difference!
Next up, we want to employ next month, the salary would probably be ~£20k so I'm wondering how that will affect things, if at all (with regards to the NIC employers allowance)? I don't know how to do the sums but my gut tells me on my partner and my £10k each, another employee at £20k still probably wouldn't use up all the £2k allowance anyway? Especially as it'd only be 7 months of 2014/15 anyway, so even after employing it's probably best to stick to £834/month?
Note, I realise 12 x 834 is over 10k (just) but given I've already done 3 months @ £1k/mth, a few pounds here and there isn't a big deal. I'm not trying to be the perfect zero income tax payer, I'm trying to understand it all and trying to be tax efficient to save the business as much money as I can in it's early stages. Please help me understand this clearly and advice the best course of action for the next 8 months pay.
Thanks, I really appreciate expert input!
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