We currently manage payroll and auto enrolment for over 90 businesses: from larger clients such as haulage companies, warehouses and care providers with complex payroll needs, to smaller director only companies. As with all of our services, we advise on doing this in the most tax efficient way.
As a general rule if you are a director shareholder we advise taking a minimum salary, and any balance of remuneration as dividends. This tends to reduce NIC, and, in some cases, Income Tax.
The planning strategy is to pay a minimum salary at a level that qualifies the director for State benefits, including the State Pension, but does not involve payment of any NIC.
For 2017/18 the NIC rate is set at 0% for annual earnings in the range of £5,876 to £8,164 inclusive. Earnings in this band range qualify for NIC credit for State benefit purposes. At £112.99 per week (£5,875 p.a.) no NIC credit is obtained for State benefit purposes. At £157.01 plus per week (£8,165 p.a.) NICs start to be paid at the rate of 12%.
Directors, who are first appointed during a tax year, are only entitled to a pro rata annual earnings band which depends on the actual date appointed. Care needs to be taken in these circumstances not to incur an unexpected liability to pay NIC.
Directors resigning during the year still have the full annual earnings band quoted above, so care is needed to ensure that earnings for the whole tax year are within the range of £5,876 to £8,164.
However all circumstances are different, so if you’re a director considering your planning options for the first time it’s best to take professional advice: there are a number of considerations to take into account when setting the most tax/NI efficient salary.
We’d be delighted to help. Contact us online or call 01785 248 939 to speak to one of our team and book in for a free consultation to talk about your business needs.