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National Insurance allowance

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    #41
    Originally posted by pmasoft View Post
    Thank you!
    It is relevant to the OP but seems to have been hijacked by others and taken off in another direction which wasn't anything to do with the original post.
    I think there was a certain degree of confusion over what you were saying. At the risk of fanning the flames I'm not certain it is relevant to the OP.

    His entire annual allowance is "used" in the sense that more than the annual allowance has been earned and thus all further income is liable for income tax.

    However only half of his annual allowance is "used" in the sense that it has been "allowed" for in the paye calculation. As I showed the OP is currently in a position where they have overpaid - based on time elapsing and no further income. Of course if they are running a payroll this position will resolve itself because the refund will be calculated and distributed (subject to any maximums applied by HMRC to payroll of course).

    As to whether or not the OP should decide to pay themselves any further salary this year that depends on a number of factors. Probably not would be my answer. Certainly there is a risk of increasing the overall amount paid over to HMRC as a result of any NI that became due (obviously depends on the level of salary paid).

    Comment


      #42
      Originally posted by Maslins View Post
      pmasoft, you're wrong. Others have explained why.

      Monthly PAYE deductions are just employers attempting to collect your tax evenly over the year, done on the basis that you'll continue earning at a similar rate all year.
      He hasn't twigged who you are or what you do for a living I think.
      But then we Brits have had enough of 'experts' now.
      Last edited by Lance; 14 October 2016, 12:16.
      See You Next Tuesday

      Comment


        #43
        Originally posted by guardy75 View Post
        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
        I don't know why you think you will only get an 8k tax allowance as a directory. You should get 11k, same as anybody else. An exception could be as a result of BIK if you are giving yourself certain benefits. In any event tax is cumulative and pro-rated though the yeas so ultimately it only affects when you pay. Not how much. Your real tax is only known at the end of the year.

        You mention NI rates in the title, so I'm confused as to whether you are talking about NI. This is calculated differently for directors and, unlike regular employers, becomes in effect an annual calculated smoother over a year (or pro rates if not a director for an entire year).

        However 8k or 11k are not particularly relevant numbers for NI rates and thresholds so it is unclear.

        Comment


          #44
          Originally posted by ASB View Post
          I think there was a certain degree of confusion over what you were saying. At the risk of fanning the flames I'm not certain it is relevant to the OP.

          His entire annual allowance is "used" in the sense that more than the annual allowance has been earned and thus all further income is liable for income tax.

          However only half of his annual allowance is "used" in the sense that it has been "allowed" for in the paye calculation. As I showed the OP is currently in a position where they have overpaid - based on time elapsing and no further income. Of course if they are running a payroll this position will resolve itself because the refund will be calculated and distributed (subject to any maximums applied by HMRC to payroll of course).

          As to whether or not the OP should decide to pay themselves any further salary this year that depends on a number of factors. Probably not would be my answer. Certainly there is a risk of increasing the overall amount paid over to HMRC as a result of any NI that became due (obviously depends on the level of salary paid).
          Suspect you are right as to confusion. I suppose the simplest way of looking at it would be if OP has 11000 allowance and is half way through year he could take 5500 salary over remainder of year and pay no further tax. Any more and it is taxed on difference. Simples!

          Comment


            #45
            Originally posted by pmasoft View Post
            Suspect you are right as to confusion. I suppose the simplest way of looking at it would be if OP has 11000 allowance and is half way through year he could take 5500 salary over remainder of year and pay no further tax. Any more and it is taxed on difference. Simples!
            No no no no.
            OP has already had £25k gross.
            You cannot be saying that he still has £5.5k to take with no tax that is just plain wrong.
            See You Next Tuesday

            Comment


              #46
              Originally posted by Lance View Post
              No no no no.
              OP has already had £25k gross.
              You cannot be saying that he still has £5.5k to take with no tax that is just plain wrong.
              Yes Yes Yes Yes.

              OP has paid tax on 25k but only used half allowance. Therefore he could draw 5500 for remainder of year and have already paid correct tax on 25000+5500. Therefore no further tax liability.
              You seem to be ignoring the tax he has already paid. He did not get 11k of 25k tax free.
              Last edited by pmasoft; 14 October 2016, 12:44.

              Comment


                #47
                Originally posted by Maslins View Post
                pmasoft, you're wrong. Others have explained why.

                Monthly PAYE deductions are just employers attempting to collect your tax evenly over the year, done on the basis that you'll continue earning at a similar rate all year.
                Do you ask people's CUK username before you decide to take them on as a client?
                "You’re just a bad memory who doesn’t know when to go away" JR

                Comment


                  #48
                  Originally posted by pmasoft View Post
                  Suspect you are right as to confusion. I suppose the simplest way of looking at it would be if OP has 11000 allowance and is half way through year he could take 5500 salary over remainder of year and pay no further tax. Any more and it is taxed on difference. Simples!
                  Yes and No. The first payment will generate a refund (subject to regulatory limits).

                  I will use different figures to make it easier for me.

                  HM Revenue & Customs: PAYE-Session Ended

                  24k paid upto month 6. Free pay = 5,500, tax due = 4,198

                  1k paid in month 7. Free pay = 6,422, total tax due to date = 3,715, refund = 482.60

                  1k paid in month 8. Free pay = 7,339, tax due = 3,732, less 3,715 paid, tax due = 17

                  If in month 7-12 payroll was run and his pay was zero then month 7 would trigger a refund of 682.60, 8 a refund of 183.40 and so in. Total to be refunded by month 12 (with zero additional income in that period) would be £1,600

                  Comment


                    #49
                    @pmasoft
                    My comment about financial services added nothing to the discussion. Shouldn't have made it, sorry.

                    You can win this discussion. I'll tell you how -- run the numbers and show your results.

                    Use these inputs. Assume OP had exactly 25K salary as a permie over 6 months. He then contracts the remaining six months.

                    Please calculate his final tax liability (as determined on his SATR) if he pays himself no salary at all in his six months of contracting. Then, calculate his final tax liability if he pays himself £5.5K in salary in those six months (half of the annual allowance).

                    If you are right, and he still has unused allowance, the tax liability under both scenarios will be the same. If you are wrong, paying that extra £5.5K in salary is going to result in a higher tax liability than if he hadn't paid it.

                    I haven't calculated the numbers out to get exact amounts, but I will tell you in advance that paying himself £5.5K in salary is going to result in a final income tax liability which is £1100 higher. I understand what you are trying to say, but if he follows your advice he will be (in terms of income tax, ignoring dividend tax, CT, and other considerations) £1100 poorer than if he follows the advice of everyone else here. There's a sense in which you are getting at something that is true, but it is totally irrelevant to what the OP needs to know to be tax efficient.

                    That's what I'm saying right now. But if you can do the maths and prove it out that you are right, and that the SATR tax liability is the same whether he pays himself £5.5K salary or not because he really does have unused allowance left, I'll admit I was wrong, and "like" every comment you've made on this thread, and then retire from CUK for as long as you say.

                    Comment


                      #50
                      Originally posted by WordIsBond View Post
                      That's what I'm saying right now. But if you can do the maths and prove it out that you are right, and that the SATR tax liability is the same whether he pays himself £5.5K salary or not because he really does have unused allowance left, I'll admit I was wrong, and "like" every comment you've made on this thread, and then retire from CUK for as long as you say.
                      And so will I.
                      See You Next Tuesday

                      Comment

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