NIC earnings threshold

missile

Can someone please confirm, if I pay a part time employee a maximum of £97 per week and they have no other employment I do not deduct NIC contributions or TAX?

I understand NIC earnings threshold is £97 per week. This is not the same as PAYE Threshold which I understand is £125 per week?

This is from my interpretation of:

http://www.hmrc.gov.uk/helpsheets/e12.pdf and http://www.hmrc.gov.uk/guidance/cwg2.pdf

I am more than a little confused by how the terms used, e.g. Lower Earnings Limit (£421 monthly) Earnings Threshold (£476 monthly).

Many thanks :A

CLAPTON

the earnings threshold after which NI is payable by the employee is £110 per week; which as you say is not the same as the tax threshold of 125

bear in mind that the tax is a cumulative calculation whereas NI is a weekly (or monthly ) calculation

in your example the person would pay no tax or NI

missile

Many thanks for your prompt clear response.

My situation is perhaps a little unusual. I retired @ 50 and now @ 58 I have decided to work 2-3 days / week part time and have formed a limited company. Really more of an interest as I am bored, how sad is that?

If I understand you correctly? I can pay myself £110 per week plus expenses without paying NIC or TAX. I would intend paying tax on the profits and declaring dividend payments as and when required. I estimate the annual income will be circa £60,000. I have already have sufficient contributions to achieve maximum state pension and I consider my private pension arrangements are adequate to meet our needs.

Please note, I do not wish to break any rules but would like to avoid paying NIC and more TAX than I have to.

chrismac1

Be careful. The £475 per month salary, and divis thereafter, is suitable for most folk whose SOLE source of income is the company. In your case it sounds like you have a pension, in which case the salary will not be tax free at all - in fact it will be taxed at your marginal rate.

You might want to consider paying a one-off fee to an accountant to advise on your specific circumstances. Also, unless you know the Companies Act well, DIY accountancy is not a shrewd move so you'll need an accountant to sort out the year-end accounts, tax submission and Companies House filing - possibly also the routine admin. like dividend warrants, minutes and so forth.

Another factor you might like to consider is the 43,875 40% tax threshhold. You'll be taxed on:

1. Your pension income per the end of year returns from your providers PLUS
2. Any salary paid to you PLUS
3. Any investment income including dividends PAID to you in the tax year by your company.

One option I'd expect your accountant to explore with you is:

1. You declare dividends such that your total income in the tax year is just under 43,875 - so no 40% tax to pay.
2. This builds up retained profits in your company.
3. Once you start to wind the business down, you keep the dividends high enough so your total income is just under the 40% bracket.
4. So no 40% tax for you, then!

However, this is one of many options and I certainly would not suggest that it meets all of your needs, given the incomplete information. In your position I would not take anything on a public forum as gospel - I'd want paid for advice with PII backing it up.

zygurat789

That £43,875 goes down to £42,475 from next April 5.

missile

chrismac1 wrote: »

Be careful. The £475 per month salary, and divis thereafter, is suitable for most folk whose SOLE source of income is the company. In your case it sounds like you have a pension, in which case the salary will not be tax free at all - in fact it will be taxed at your marginal rate.

You might want to consider paying a one-off fee to an accountant to advise on your specific circumstances. Also, unless you know the Companies Act well, DIY accountancy is not a shrewd move so you'll need an accountant to sort out the year-end accounts, tax submission and Companies House filing - possibly also the routine admin. like dividend warrants, minutes and so forth.

Another factor you might like to consider is the 43,875 40% tax threshhold. You'll be taxed on:

1. Your pension income per the end of year returns from your providers PLUS
2. Any salary paid to you PLUS
3. Any investment income including dividends PAID to you in the tax year by your company.

One option I'd expect your accountant to explore with you is:

1. You declare dividends such that your total income in the tax year is just under 43,875 - so no 40% tax to pay.
2. This builds up retained profits in your company.
3. Once you start to wind the business down, you keep the dividends high enough so your total income is just under the 40% bracket.
4. So no 40% tax for you, then!

However, this is one of many options and I certainly would not suggest that it meets all of your needs, given the incomplete information. In your position I would not take anything on a public forum as gospel - I'd want paid for advice with PII backing it up.

Many thanks for your response. :A
I am not intending to DIY accountancy. From past experience, I believe a good accountant is worth his fee. I am very pleased you guys have given me some ideas to discuss with the accountant.

I do have investment income and pensions and will be paying tax on those. I will try to keep taxable income below 40% threshold.