national insurance - ltd co

srbuck

I am a director of a Ltd Co, and have a query as to why I am not currently being credited with pension credits by the DSS?

I believed that, even though I do not pay NI contributions because I am below the earnings threshold (I take most of my profits as dividends), my state pension account should still be credited?

Many thanks.

Pennywise

You get no NIC credits unless you earn more than the lower earnings limit (currently £82 per week). You start paying NIC when your wages are over the primary threshold (currently £94 per week). If you earn between these two figures, you don't pay NICs but you do get credit towards state benefits. BUT you must complete your annual payroll returns and send in a P14 for yourself showing your wages - otherwise they wouldn't know.

srbuck

Thanks, Pennywise.

NeilW

You should always make sure that you receive at least your personal allowance (£4895 in 2005/6) from income sources other than dividends - preferably as earnings to ensure you get your state pension credit. Otherwise you are effectively wasting some of the personal allowance because you can't reclaim the tax credit on dividends.

The usual approach is to pay a 'honorarium' director's fee equivalent to the personal allowance at the beginning of a tax year as a lump sum annual payment. This reduces the paperwork on the PAYE system to the absolute minimum.

This minimises the tax payable, but still ensures that you get your National Insurance pension credit.

NeilW

Slinky

NeilW wrote:

You should always make sure that you receive at least your personal allowance (£4895 in 2005/6) from income sources other than dividends - preferably as earnings to ensure you get your state pension credit. Otherwise you are effectively wasting some of the personal allowance because you can't reclaim the tax credit on dividends.

The usual approach is to pay a 'honorarium' director's fee equivalent to the personal allowance at the beginning of a tax year as a lump sum annual payment. This reduces the paperwork on the PAYE system to the absolute minimum.

This minimises the tax payable, but still ensures that you get your National Insurance pension credit.

NeilW

Would this be possible to do at another point during the tax year and still get the NI credit? I only started my company in January. I took £250 salary last year to get the benefit of a tax break being offered for an on-line filing of something (as arranged by my accountant), but I haven't paid myself anything this financial year yet. :-( My accountant charges £50 per payroll, so I can't afford to do it monthly. However, I would like to have some money back out of the company, and I can just about afford to pay myself soon. Would it be best now to wait til the end of the year, or does it not matter?

Pennywise

Slinky wrote:

My accountant charges £50 per payroll

Time to get another accountant if they're really charging £50 per payslip - are you sure the £50 didn't include the online filing and year end returns, or was a one-off for setting up the payroll. I've never heard of charges so high!

But, yes, to answer your question, yes you can, but you need to pay above the lower earnings limit - director's NICs are done on an annual basis, so you would need to pay £4,300 or more during the current tax year - the exact dates and exactly how you pay it aren't really relevant.