Taking a salary equal to lower earnings limit

[boby]

Hello,

I have a ltd company I use from time to time for IT contracts

My wife and I are share holders and directors and only take income as dividends (5k each last year)

I work as a full time employee so was thinking of adding my wife as a employee to extract some money from the company to reduce the tax liability. She is a full time mom so not working at the moment and i understand she can can be paid £113 per week without the need to setup a paye scheme.

I have read on a few sites that people under the lower earnings limit also can build up NI contributions? Is this correct and if yes how do I register these NI credits?

thank you for your help

Regards

[Louisa@AardvarkAccounting]

Yes, that's correct, you can have a salary of up to £8,164 per annum currently without incurring any income tax or NI (assuming no other personal income from any other sources, excluding the £5,000 dividend you mention).

Also, in addition this will count towards earnings for the year and state pension credits.

Another consideration - you mention 'full time mum', if she is an employee of the company, then your company could contribute as well for childcare vouchers/costs.

[Darren at Fox-Bartfield]

Salaries

Agree with Louisa, in addition it could be worthwhile taking the salaries up to £11500, paying a bit of E'ees NI but also claiming the Employers Annual Allowance so you wouldn't pay any E'ers NI.....only if both you and your wife are put through the company.

As @NLUK would say, "have you spoken with your accountant?"

[boby]

Thanks for your replies. I do not have an accountant as we only take out dividends so the accounts are very simple

When you say "Also, in addition this will count towards earnings for the year and state pension credits." how is this done? if I do not have a PAYE scheme hows does HMRC know about my wifes salary?

[Louisa@AardvarkAccounting]

When you say "Also, in addition this will count towards earnings for the year and state pension credits." how is this done? if I do not have a PAYE scheme hows does HMRC know about my wifes salary?

You will need to register for a PAYE scheme with HMRC. Then they will know, as you will need to complete RTI submissions on a monthly basis, which will report the level of earnings.

[boby]

The HMRC website states i do not need to register for paye as the if the salary is less then £113

https://www.gov.uk/paye-for-employers

You don’t need to register for PAYE if none of your employees are paid £113 or more a week, get expenses and benefits, have another job or get a pension. However, you must keep payroll records.

So if I want the NI credits i need to register for PAYE. If I do not need the NI credits I can skip PAYE registration?

[Louisa@AardvarkAccounting]

There seems to be some conflicting advice about whether you still need to report this salary under the RTI requirements.

If you do register for PAYE, you can easily make RTI submissions for free through HMRC's Basic Tools.

You are right, HMRC's website does state you don't need to register for PAYE. However one way or another, HMRC or at least the DWP will need to know what she is earning so this is correctly shown.

So, if the employee earns £113 per week or less and this is not reported to HMRC through RTI, the individual will be expected to inform DWP of their earnings instead.

[Michael at BI Accountancy]

So if I want the NI credits i need to register for PAYE. If I do not need the NI credits I can skip PAYE registration?

Should you not want to register for PAYE then if you still want to obtain NI credits you would need to look into voluntary contributions (class 3).

https://www.gov.uk/voluntary-nationa...-contributions

[boby]

thanks everyone, seems it best to register for PAYE

[Pondlife]

If you're going to pay your wife £8k or £11k, you are going to have to be able to demonstrate that she is doing that amount of work for the company.

You can't claim she does £8k's worth of work because she once handed you your mobile when an agent rang you.