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National Insurance allowance

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    National Insurance allowance

    Hi,

    So between April 16 - October 16 I was an employ for a major company and earned c. £25k before tax in these 6 months.

    I have since set up my own limited company of which I am the sole director and employee and will pay myself c. £20k in dividends between Oct 16 and March 17.

    My question is will my threshold for 0 rate tax on my paye salary earned be 8k or 11k? I understand that as a sole director company I only get 8k but I am not sure that as my salary for the year all came whilst employed for a company with c.1000 employees whether this would apply or not.

    Thanks in advance.
    Dan

    #2
    I can't see anything in your post related to the national insurance allowance.

    You don't have any personal tax allowance left as it has been used up by your main job.

    You can take £5k in dividends tax free and a further £13k in dividends at 7.5% before hitting the higher rate tax band.

    You can only take this level of dividends if your company has sufficient profit after tax.

    Comment


      #3
      Originally posted by guardy75 View Post
      So between April 16 - October 16 I was an employ for a major company and earned c. £25k before tax in these 6 months.
      I'll stop you there and say 'pay no salary to yourself this tax year'

      I have since set up my own limited company of which I am the sole director and employee and will pay myself c. £20k in dividends between Oct 16 and March 17.
      No you won't. You hope to. Earn it first. Dividends are profit after tax. Paying dividends your company can't afford is illegal.

      My question is will my threshold for 0 rate tax on my paye salary earned be 8k or 11k? I understand that as a sole director company I only get 8k but I am not sure that as my salary for the year all came whilst employed for a company with c.1000 employees whether this would apply or not.
      -what's your tax code? It's on there. But you've already earnt £25k so not relevant unless you're on a really weird code with huge amounts of overpaid tax in previous years.
      -Directorship doesn't change your allowance. Where are you getting this guff from?
      -size of company you've come from makes no odds.

      You really, really need an accountant as you clearly have missed some real important stuff.
      Read the links to the right.
      Have I missed anything before NLUK pipes in?
      See You Next Tuesday

      Comment


        #4
        Guys, you missed the thread title, he's asking about NI allowance, not personal tax allowance.

        OP. You are over your personal tax allowance. Any salary you pay yourself will incur 20% income tax. It will also save 20% corporation tax.

        You DO have NI allowance left. £672.00 a month, I think it is. It's done on a monthly basis for non-directors and an annual basis for directors. For directors who are not directors for the entire year, it is pro-rata. So in your case, you will be able to pay yourself approximately £4K this year in salary without paying an national insurance.

        If you do this (say it is exactly £4K), you will save £800 (20%) in corporation tax but increase your income tax by £800. However, since the after tax profit (in this case £3200) also incurs dividend tax of 7.5%, you will save another £240 in dividend tax by paying the salary, rather than a) taking the profit b) paying corporation tax c) distributing after-tax profit as dividend and d) paying dividend tax.

        If you take salary above the NI threshold, you will not only incur further income tax, you will also get hit for NI. At that point, it's a loser, the NI more than cancels the dividend tax.

        If you take the salary, you have to operate PAYE and RTI. Probably worth it since you need to set up for it next year, anyway.

        I am not an accountant. Verify everything I've said here with your accountant. But I believe you are right to be focusing on your NI allowance and that paying yourself a salary up to the NI threshold is the most tax efficient way to go. I also think that if you thought £11K was even a possibility that you don't really understand this stuff well enough to do it yourself, and you really need an accountant. Don't even try to play this game without one.

        Comment


          #5
          Originally posted by WordIsBond View Post
          Guys, you missed the thread title, he's asking about NI allowance, not personal tax allowance.
          Didn't miss it, its just the wording of his post seemed to suggest nothing about national insurance. Also, if they are only planning to pay themselves dividends then why are they concerned about NI?

          Comment


            #6
            Personal Tax Allowance

            Originally posted by TheCyclingProgrammer View Post
            I can't see anything in your post related to the national insurance allowance.

            You don't have any personal tax allowance left as it has been used up by your main job.

            You can take £5k in dividends tax free and a further £13k in dividends at 7.5% before hitting the higher rate tax band.

            You can only take this level of dividends if your company has sufficient profit after tax.
            Hi,
            I'm not sure you are correct about having no tax allowance left. Under PAYE the annual allowance would normally be broken down into monthly chunks of allowable income before applying tax in a cumulative way

            Therefore after 6 months only half of the allowance would be used and the other half will still be available.

            Otherwise you would pay no tax on the first 11k and get hit hard once you earn over your allowance.

            Comment


              #7
              Originally posted by pmasoft View Post
              Hi,
              I'm not sure you are correct about having no tax allowance left. Under PAYE the annual allowance would normally be broken down into monthly chunks of allowable income before applying tax in a cumulative way
              OP has already said they've earned £25k gross this tax year. When all is said and done, they do not have any personal tax allowance left. Any additional salary they take now, will be taxed come the end of the tax year.

              Comment


                #8
                Originally posted by TheCyclingProgrammer View Post
                OP has already said they've earned £25k gross this tax year. When all is said and done, they do not have any personal tax allowance left. Any additional salary they take now, will be taxed come the end of the tax year.
                As he was under PAYE he would only have used part of his allowance (11000/12*6)= 5500 and paid tax on 19500. Therefore he still has 5500 left. The fact he has already been paid over 11k is immaterial.
                Using your calcs he would have only paid tax on 14000 which is not how PAYE works in BigCo.

                Comment


                  #9
                  Originally posted by pmasoft View Post
                  As he was under PAYE he would only have used part of his allowance (11000/12*6)= 5500 and paid tax on 19500. Therefore he still has 5500 left. The fact he has already been paid over 11k is immaterial.
                  Using your calcs he would have only paid tax on 14000 which is not how PAYE works in BigCo.
                  I know how PAYE works. Are you being deliberately obtuse? It's utterly irrelevant. He can no longer pay any more salary without also paying extra income tax. That's all that matters. Whether that's now or at the end of the tax year - who cares?

                  As WIB pointed out he could take a small amount of salary in a tax neutral way due to the NI allowance being per employment and the CT saving cancelling out the income tax that would be due. But you're implying he could take another £5.5k tax free which is nonsense.
                  Last edited by TheCyclingProgrammer; 13 October 2016, 13:57.

                  Comment


                    #10
                    Originally posted by TheCyclingProgrammer View Post
                    I know how PAYE works. Are you being deliberately obtuse? It's utterly irrelevant. He can no longer pay any more salary without also paying extra tax. That's all that matters. Whether that's now or at the end of the tax year - who cares?
                    I give up. Talk to your accountant.

                    Comment

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