State Pension For Company Owners Not Paying NI?

MoneyBob

Like many, I pay myself the maximum salary from my limited company each year, without getting above the threshold for NI or PAYE. The rest I pay myself in dividends. A standard system.

My accountant assures me that this entitles me to the state pension in the future, despite not paying any NI or PAYE at all.

Listening to discussions on radio 4 about the new system there were regular mentions of the importance "to have made NI contributions for over 30 years" etc etc.

Is my accountant correct?

TY!

Caz3121

I would have thought you would be paying class 2 contributions of £2.65 per week or applying for class 2 small earnings exemption (if under £5,595) and also class 4 contributions on the profit (either lower or upper)
Although the class 4 contributions do not count towards state pension, the class 2 ones do

MoneyBob

Hi, thanks, but no, I am paying neither class 2 nor class 4 contributions.

sammyjammy

MoneyBob wrote: »

Hi, thanks, but no, I am paying neither class 2 nor class 4 contributions.

You will not be entitled to State pension under these circumstances. You can't have your cake and eat it I'm afraid.

MoneyBob

Here's what my accountant says on this matter:

"Class 2 & class 4 contributions are paid by self employed people only & you're not self employed. You are classed as an employee and if you were paying NI it would be class 1 contributions.

There are different thresholds for class 1 national insurance. If you earn more than the "Lower earnings limit" (currently £107 per week) you have an entitlement to contribution based benefits including the state pension.

But you don't start paying any national insurance until your earnings exceed the "primary threshold" (currently £146 per week).

You are currently paid £620 per month which is £143 per week. This is conveniently above the Lower Earnings Limit, but below the Primary Threshold.....So you don't pay any NI but you do have an entitlement to the state pension."

But as per my original question, is this still the case with the new system being introduced?

MoneyBob

Additional, a quote from "Practical Law" website:

"
Lower earnings limit (LEL)

Set each tax year by the government, the amount of earnings which allow an employee to qualify for certain state benefits (such as qualifying years for the basic state pension). Even if an employee earns more than the LEL, he is not required to pay primary, class one National insurance contributions until his earnings reach the primary threshold. In the 2012/13 tax year, the LEL is set at £107 a week. See also upper earnings limit (UEL)."

westy22

Your accountant is correct. You will accrue a 'free' NI credit if you are an employee and earn between £107 and £146 per week.

Many company owners set themselves up as employees at this annual rate for exactly these reasons.

Dunroamin

Another loophole that needs closing!