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 2012 you are probably paying yourself £589 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. Last year there were plans to consolidate tax and NI systems and the point at which tax and NI is charged “should” have been equalised, however this did not happen. This year there are 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 2012/13:
Lower earnings limit: £107pw / £464pm / £5,564pa
Primary Threshold: £146pw / £633pm / £7,592pa
Secondary threshold: £144pw / £624pm / £7,488pa
So if you are currently paying yourself £589pm, you should be paying under £624pm, I would suggest £620 from 6 April to avoid any possibility of incurring tax through roundings. This is just below the secondary threshold (employers), providing nothing changes in the budget.
These facts are based on the current HMRC NI rates. 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”