Tax/national insurance question

toffee'n'tom

Hi

I'd be really grateful if someone could help me out with the following.

I am one of two directors in a new limited building company. We're now in a position for the other director to take a small salary from the company. He has other income and completes a tax return every year. What is the correct way and the ideal amount to pay?

Will he have to sort out paying his own tax and national insurance or do I have to do that through the company?

What happens if his salary is below the tax threshold (not taking into consideration his other income)?

What happens if his salary is below both the tax and national insurance contribution threshold?

Does paying him a low salary have any knock on affect on the company?

thanks for reading

emsywoo123

toffeentom wrote: »

Hi

I'd be really grateful if someone could help me out with the following.

I am one of two directors in a new limited building company. We're now in a position for the other director to take a small salary from the company. He has other income and completes a tax return every year. What is the correct way and the ideal amount to pay?

Will he have to sort out paying his own tax and national insurance or do I have to do that through the company?

What happens if his salary is below the tax threshold (not taking into consideration his other income)?

What happens if his salary is below both the tax and national insurance contribution threshold?

Does paying him a low salary have any knock on affect on the company?

thanks for reading

Do you have an accountant? A good one is worth their weight in gold...........

toffee'n'tom

Yes we do. I just thought I'd get an idea of what to do before I went to see him next week?

Darksparkle

toffeentom wrote: »

Yes we do. I just thought I'd get an idea of what to do before I went to see him next week?

Can you be more specific, what do you mean by a small salary?

A director goes through PAYE the same as any other employee (although NIC should be dealt with annually and not at each pay period as you do with employees).

It would depend entirely on what salary he takes as to whether he pays any tax/NIC and whether the company would pay any NIC.

He needs to declare any salary received on his tax return also.

toffee'n'tom

By small I mean anything between 8060 and 12000 a year?

I suppose what I really want to know is does the company have to deal with his tax and NIC contributions or can he do that himself on his own tax return?

HappyMJ

£8,060 is the ideal salary as there is no tax or NI to pay. The rest can be paid out as dividends.

Darksparkle

toffeentom wrote: »

By small I mean anything between 8060 and 12000 a year?

I suppose what I really want to know is does the company have to deal with his tax and NIC contributions or can he do that himself on his own tax return?

The company need to declare his earnings regardless of whether it is £8060 or £12000.

https://www.gov.uk/register-employer

Whether he pay tax/NIC and the company NIC depends on how much is settled on.

https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2015-to-2016

He still declares it on his tax return either way.