In past years we have frequently advised directors who are also shareholders to pay an amount in salary up to the NIC lower earnings limit, and to reward themselves in the form of dividends on the shares held. This is because salaries paid above this limit resulted in a Corporation Tax saving of 20%, but attracted National Insurance of about 25%.
However, this advice may need to be tweaked in the forthcoming year. The £2,000 Employment Allowance that comes into effect in April means that the 20% reduction in Corporation Tax may be achieved at a cost of only 12% National Insurance, subject only to the salary not exceeding the director’s personal allowance.
We will be contacting all payroll clients who may be affected in the next few weeks. However, if you think that this may apply to you then please feel free to contact us. Always bear in mind that if you are not already within the RTI net then the cost of implementing the above may exceed the benefits.