Budget: £2k NI allowance

[Wanderer]

The Employment Allowance will be introduced from April 2014, up to £2,000 will be deducted from their employer NICs liability over the course of the year’s PAYE payments.

So they get their kickers in a twist about these offshore companies employing low paid workers and not paying enough employer's NI then they give out this tax break for employer's NI.

Yeah, I know it's not exactly the same thing but funny none the less...

[northernladuk]

My view is that it will not apply to most contractors due to the fact that they tend to pay a salary where no NIC (both employers and employees) is payable, hence there will be nothing to rebate!

Hmmm, got my eye on you!

[minstrel]

Doesn't this all effectively mean that from April 2014 the optimum salary will be £10k (the personal allowance)?

As effectively all Employer NI will be refunded, the tax on income between Primary Threshold (£8k ish) and personal allowance will be Employee NI at 12%.

So it's better to pay 12% on the £2k of income over £8k, than keep it in the company and pay 20% CT on it.

[Contreras]

Doesn't this all effectively mean that from April 2014 the optimum salary will be £10k (the personal allowance)?

As effectively all Employer NI will be refunded, the tax on income between Primary Threshold (£8k ish) and personal allowance will be Employee NI at 12%.

So it's better to pay 12% on the £2k of income over £8k, than keep it in the company and pay 20% CT on it.

Well spotted.

Although other income, charitable donations, etc. affect the effective allowance so optimum salary will depend on circumstances.

[mudskipper]

Does this mean that if you're inside IR35, you'll be another 2K better off if you operate via a limited company than going through a brolly? (Hypothetical question, doesn't affect me)

[eek]

Does this mean that if you're inside IR35, you'll be another 2K better off if you operate via a limited company than going through a brolly? (Hypothetical question, doesn't affect me)

it depends on the relative cost of the brollie vs accountants fees and what the rules say about directors NI. (My inkling is that they'll explicitly exclude them from the benefit).

[LisaContractorUmbrella]

The point of this from the Government's point of view seems to be to encourage businesses to take on staff - they hope to create more jobs by lowering the cost of employing people - I don't believe it was intended to be payable to single person Ltd Co's

[Notascooby]

Doesn't this all effectively mean that from April 2014 the optimum salary will be £10k (the personal allowance)?

As effectively all Employer NI will be refunded, the tax on income between Primary Threshold (£8k ish) and personal allowance will be Employee NI at 12%.

So it's better to pay 12% on the £2k of income over £8k, than keep it in the company and pay 20% CT on it.

Maybe it's worth waiting until the end of the year to pay a salary after all!

[psychocandy]

Doesn't this all effectively mean that from April 2014 the optimum salary will be £10k (the personal allowance)?

As effectively all Employer NI will be refunded, the tax on income between Primary Threshold (£8k ish) and personal allowance will be Employee NI at 12%.

So it's better to pay 12% on the £2k of income over £8k, than keep it in the company and pay 20% CT on it.

Thats exactly what I thought when I first heard it. At the moment, I pay salary up to the NI threshold because I don't want to pay employers NI and employees NI because its better going the dividend route and paying 20% CT.

But, same as you, surely if the employer NI is refunded, you're only paying employees NI now at 12% and no CT at 20%???

[psychocandy]

The reason why you will not be better off is because you will still be liable to pay employees NIC.

This will benefit people who already pay above the commonly suggested rate of £7,696 (2013/14) but it is not sufficient to justify changing your salary above £7,696!

Alan

Hi alan,

OK. But isn't it better to pay employees NI (12%) and no employers NI (because of the refund) than leave it as dividend and pay 20% CT?

I'm sure there are reasons of course because NW usually get this spot on.