Taking company pension early, contracting and NIC's?

[Fred Bloggs]

I am going to be drawing a pension from an ex employer from May this year, it will be about £10k per year. I have another 5 or 6 years work ahead of me before fully retiring though so I will still be contracting. I have paid enough NIC to qualify for my state pension but I wish to pay some NIC to qualify for contribution based benefits. I will have a "BR" tax code for my contracting income but the situation I am in seems quite complex from paying a point of view of a LTD Co salary and paying NIC's as required. Given a £10k pension, I am unsure how much salary to draw and how much NIC to pay? Thanks for any insight.

[Clare@InTouch]

You could pay a salary up to the no-NI limit, currently £589 per month. That way you'd get credit for pension & benefits without paying any NI. You would pay basic rate tax on the whole lot because of your BR code, but then you'd save CT at the same rate so it would be in one hand and out the other. No tax loss overall but NI credit.

[Fred Bloggs]

You could pay a salary up to the no-NI limit, currently £589 per month. That way you'd get credit for pension & benefits without paying any NI. You would pay basic rate tax on the whole lot because of your BR code, but then you'd save CT at the same rate so it would be in one hand and out the other. No tax loss overall but NI credit.

Thanks Clare. I think I will round that up and pay some NICs. I have looked at this more, you are referring to "ST" or secondary threshold (I believe) it is set at £624 per month for 12/13. I also found HMRC document CA44, it relates to this scenario, but it is 48 pages long! Thanks again.