Employer & Employee NI Contributions When Going Perm to Contract

[JoJoGabor]

Sorry, I was genuinely interested if there was some sort of working practices review service. Couldnt quite figure out how it would work

[Hex]

Hi
I have recently moved from an Umbrella Co to Ltd Co. I've earned around £45k so far this year with the ubmrella, all PAYE. How should the deductions for employer & employee NI be handled now I'm a director? I pay myself a salary of £20k.

I've been reading this

http://www.hmrc.gov.uk/nitables/ca44.pdf

but its not 100% clear how much further NI I must pay this tax year.

NI is calculated seperately for each employment. So what you have already paid via a previous employment will be irrelevant in calculating what you have to pay for this new one.

The NI bands start from scratch again for each employment, so you can earn £7,072 from this new employment without having any NI liability (employer's or employee's).

[Nixon Williams]

NI is calculated seperately for each employment. So what you have already paid via a previous employment will be irrelevant in calculating what you have to pay for this new one.

The NI bands start from scratch again for each employment, so you can earn £7,072 from this new employment without having any NI liability (employer's or employee's).

Assuming that you are a director of your own company, then you do not 'receive' the full allowance if you become a director part way through the tax year, basically it is split on a pro-rata basis.

The employee's limit for 2011/12 is £7,225 and £7,072 for the employer.

If your new employment is as an 'employee' ie not a director, then the NIC threshold is applied per month/week depending upon how often you are paid.

So to sum up, you do not receive multiple NIC free income if you start several jobs during a tax year.

There is an exception that if the directorship ends during a tax year, you would receive the full allowance and then effectively receive the allowance again when you start a new employment.

Alan

[Coolshot]

Assuming that you are a director of your own company, then you do not 'receive' the full allowance if you become a director part way through the tax year, basically it is split on a pro-rata basis.

The employee's limit for 2011/12 is £7,225 and £7,072 for the employer.

If your new employment is as an 'employee' ie not a director, then the NIC threshold is applied per month/week depending upon how often you are paid.

So to sum up, you do not receive multiple NIC free income if you start several jobs during a tax year.

There is an exception that if the directorship ends during a tax year, you would receive the full allowance and then effectively receive the allowance again when you start a new employment.

Alan

Alan,
By pro-rata do you mean that if for example I became director 3/4 way through the tax year the allowances would be 1/4 of £7,225 and £7,072?

[Nixon Williams]

Alan,
By pro-rata do you mean that if for example I became director 3/4 way through the tax year the allowances would be 1/4 of £7,225 and £7,072?

Basically, yes.

Alan

[Hex]

There is an exception that if the directorship ends during a tax year, you would receive the full allowance and then effectively receive the allowance again when you start a new employment.

Alan

What about in his case where he has ended an employment with his umbrella mid-way through the year and has then become director of his limited company. Is this an exception too or does it only work the other way around?

[Greg@CapitalCity]

What about in his case where he has ended an employment with his umbrella mid-way through the year and has then become director of his limited company. Is this an exception too or does it only work the other way around?

It only works the other way around. In the case you mention, the NI threshold for the new Director is calculated on a pro rata basis from when the Directors appointment took place.