If you are a company director and are paying yourself a low salary and topped up with dividends allow read on. Up to 5 April 2013 you are probably paying yourself £620 per month, this is greater than the NI Lower Earnings Limit at which you build up state entitlements but below the Secondary Threshold at which point the employer starts paying employers NI contributions of 13.8%.
The decision to change the starting limits for both tax and NI is made every autumn to take place in the following tax year. The rates are increased every year partly to keep in step with inflation and partly for socio-political reasons. The plans to consolidate tax and NI systems have been scrapped with political pressures to increase the PAYE tax allowance towards £10k so the gap between starting point for NI and PAYE has grown once again.
Directors are in the position where they can decide at what level to pay themselves to draw tax free but still accrue state entitlements. These changes are as follows for 2013/14:
Lower earnings limit: £109pw / £472pm / £5,668pa
Primary Threshold: £149pw / £645pm / £7,748pa
Secondary threshold: £148pw / £641pm / £7,696pa
So if you were currently paying yourself £620pm, you should be paying under £641pm, we would suggest £640 from 6 April to avoid any possibility of incurring NI through roundings. This is just below the secondary threshold (employers).
These facts are based on the current HMRC NI rates, for last year see our 2012/13 post. For specific advice relating to your circumstances seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”