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NI for Director with separate employment

Does the 0% NI rate apply below Primary Threshold on multiple employments

Hello,

Firstly I would like to explain that I am not an accountant, however I do have a keen interest in and understanding of basic tax matters. I am looking to "engage" an accountant for a new company I have formed and have consulted with various individuals, however a question has arisen as part of my own tax plan and I am receiving conflicting answers from experienced, well respected accountants. I am not here to seek free tax advice, merely to try to clarify the matter. If anyone can assist it would be greatly appreciated.

  • I am currently employed PAYE and pay tax and NI at basic rate (20% + 12%)
  • I have a small sole trader business that makes very little profit (<£1k)
  • I am the director of a limited company.

My tax plan for withdrawing profits from the limited company was:
1 - pay a salary of around £8,400 per year to cover directors duties
2 - draw dividends that bring my total combined income up to £46,350.

I was expecting to pay 20% income tax and 0% employee/employer NI on the directors salary as it is below the Primary Threshold, and then to pay 7.5% dividend tax on the dividend issue. One accountant has indicated that this approach is perfectly acceptable, however another accountant indicated that the NI rate applied to the directors salary would be determined by that directors combined annual income from all sources of employment, therefore incurring employee and employer contributions on every £ paid.

HMRC guidance on the matter is unclear; they state that all payments made to the director would be combined when considering the NI rate but only from that employment. No HMRC guidance that I can find clearly outlines the situation when a director has 2 PAYE salaries from completely unrelated employments. Yet it appears that a regular employee would benefit from 0% NI rates up to the PT on as many employments as they hold.
One piece of guidance indicates that directors NI is treated differently to an employee’s in so much as it can be assessed on a cumulative basis, but it doesn't explain the above, and I can see how a misunderstanding could arise.

Your feedback would be most appreciated. Having sought accountancy advice and searched HMRC documentation I am still at a loss.

Thank you

Replies

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14th Jun 2018 15:21

Class 1 NI is charged per employment. They are not aggregated.

Thanks (1)
14th Jun 2018 15:51

The accountant who suggested directors class 1 NI is aggregated across two unrelated employers is incorrect.

Whilst everyone makes a mistake, its an odd error.

If that accountant is your prefered choice, I would perhaps ask again, if you get the same answer, dont hire 'em as they may be over the hill, or yet to climb it.

Thanks (1)
14th Jun 2018 16:03

Before you appoint your new accountant, detail your plan above and ask him/her to point out the even more basic errors. If he/she cannot do so then try another accountant.

Thanks (1)
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By Matrix
14th Jun 2018 16:19

If the employers were related parties then I believe only one combined PT threshold would be available but since this doesn't apply then I haven't provided the reference.

Thanks (1)
14th Jun 2018 16:37

Research the criteria for aggregation in the National Insurance legislation. That will explain to you when sources might be combined. The difference between the treatment of Directors and Employees relates to the earnings period used. Directors have an annual earnings period whilst employees do not.
However, Tim's point that there are basic errors in your calculations / plan is well made and you should talk to someone else before proceeding too far along your plan.
Bearing in mind that the HMRC calculation itself cannot cope with the complexities of your suggested income combination after 2 years of trying please do not think that a basic knowledge of tax is sufficient going forwards.

Thanks (1)
14th Jun 2018 16:50

I'm going to give sc2018 credit for glossing over some stuff to get at his main point which is the aggregation of NI (or not, as the case may be).

The plan's basically sound, though may need a bit of fine tuning. Not sure what is meant by NI being paid on every pound - that may be true, depending on your interpretation of what that statement means.

Obviously, the numbers need to be reviewed annually.

Thanks (1)
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By sc2018
14th Jun 2018 17:39

Thank you all for your helpful replies. To avoid an unnecessarily lengthy post I didn't go into much detail regarding my plan, only whether or not earnings are combined (aggregated) for directors. This appears to have been answered by the majority that they are not aggregated subject to certain conditions. None of my incomes are even remotely related.

I am concerned that a few people see basic errors in my plan, although my omissions and attempts to be brief have probably mislead. I will be seeking the services of an accountant for this, as I have no experience operating a limited company or relevant taxes. My concern is finding the correct accountant to provide good advice, and coming from a position of little knowledge I wouldn't know if the accountant I engage is giving the best advice.

I would not expect fee-earning advice for free online, however for the sake of clarity an example 19/20 income plan was to be as follows, pending announcement of rates and bands for that year.
A - 27,000 from employment elsewhere (entire tax-free personal allowance utilised, then incurring 20% IT and 12% NI).
B - 8,400 director salary (CT deductible, incurring 20% IT).
C - 1,000 from self employment (incurring 20% IT and 9% NI).
D - 4,800 directors loan interest (CT deductible, incurring 20% tax as interest).
E - 2,000 tax free dividend allowance (tax free).
F - 3,150 taxed dividend (7.5% dividend tax).

Again thank you for your help. I will research the legislation on aggregation of National Insurance and continue to seek an accountant.

Thanks (0)
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By Matrix
to sc2018
14th Jun 2018 18:16

D looks large and you would need to ensure the terms are arm's length. I usually advise charging rent for use of a home office for organised clients, although again it would have to be arm's length (if you are trying to minimise NI and dividend tax but remember you only get a deduction at 19% yet the income is taxed at 20% - or 40% if you get the above mixture wrong).

Your accountant may have other ideas.

Thanks (1)
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By spilly
15th Jun 2018 16:52

Be aware that HMRC may send out new tax codes to each employer to try to apportion your annual personal allowance between them.
These are often wrong, and probably the best way to deal with this is to have your PA with your main employer, and use BR on your own company payroll.

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