termination of the employers NIC incentive from April second employee implications?

[northernladuk]

Who else will you make a second director?

Oh. Are we back to directors? I thought you were talking about single people?

[TechJinx]

Wrong......

Who else will you make a second director?

[northernladuk]

Wow I'd missed the distinction. So basically will only catch single people.

Poorly thought out legislation!

Wrong......

[WordIsBond]

How much is it worth?

You increase your salary by £4K (from £8K to £12K), which costs you £480 in employee NI. Net, you gain £3520.

In turn, you reduce profit by £4K, so you save £800 in CT. That means you have £3200 less available for dividends, which would attract £240 dividend tax (assuming basic rate). So you and Mrs would together clear £2960 less in dividends in exchange for the £3520 in net salary you gain.

So unless I did something dumb here you can gain around £560 by increasing your salary to £12K and keeping the allowance.

This does not consider the ramifications of Mrs ending up paying self-employment tax, or disparity between her self-employment earnings and your salary become a factor around the income tax thresholds. If you make her an employee you can control exactly how much employment income she earns and use the employment allowance in regard to her earnings as well, paying each of you £12K a year.

This also does not consider the fact that what you do this year is only likely to be useful for one year. By April 2017, they will have decided that the restriction not only applies to one director / one employee companies, but companies where all employees are directors, and companies where the only employees are immediate family members, so you won't be able to use it anymore.

[TechJinx]

For single director companies with no employees.

Wow I'd missed the distinction. So basically will only catch single people.

Poorly thought out legislation!

[TheFaQQer]

Yeah that's the one. Disappearing from April for single employee companies

For single director companies with no employees.

[TheFaQQer]

I thought you had to be able to prove that someone did something for the company to pay a salary?
Contractor Doctor: Can I pay my spouse or partner a salary?
"the spouse or partner in question must actually be doing something for the business, and being paid according to their role and hours. They should not be being paid simply as a means of generating costs within the business or using a spouse’s tax allowances."

You don't need to pay someone a salary to be a director. And to claim the £2000 allowance, you need to have more than one director - you only have to stop claiming it if the company has one director who is not an employee. So make her a director and it means the company can claim the allowance back.

Also - the 20% extra would simply be recovered in their own VAT return quarterly so no net increase

As long as her customers are expecting it and are all VAT registered, then they're fine - if they aren't, or are on FRS then there may be an increase to them. My wife went the other way and stopped working through the limited company because none of her customers were VAT registered so it made her uncompetitive.

[TechJinx]

Do you mean the Employment Allowance? IR £2000 off your NI bill, I thought this was being increased to £3000 not being removed.

Or am I on about something else?

Yeah that's the one. Disappearing from April for single employee companies

[SimonMac]

Do you mean the Employment Allowance? IR £2000 off your NI bill, I thought this was being increased to £3000 not being removed.

Or am I on about something else?

[TechJinx]

Would it be worth the extra 20% that she will have to add to her prices to cover her VAT?

AIUI, there is nothing to prevent you from having her as a director, which would allow you to claim the allowance:

"Who is likely to be affected
Around 150,000 limited companies with a single director and no other employees."

Link

I thought you had to be able to prove that someone did something for the company to pay a salary?

"the spouse or partner in question must actually be doing something for the business, and being paid according to their role and hours. They should not be being paid simply as a means of generating costs within the business or using a spouse’s tax allowances."

Also - the 20% extra would simply be recovered in their own VAT return quarterly so no net increase

[TheFaQQer]

Would it be worth the extra 20% that she will have to add to her prices to cover her VAT?

AIUI, there is nothing to prevent you from having her as a director, which would allow you to claim the allowance:

"Who is likely to be affected
Around 150,000 limited companies with a single director and no other employees."

Link

[TechJinx]

Disclaimer - I have asked my accountant (big name IT contractor specialist) and they haven't got a formal position on this yet and will decide sometime in February so I'm asking here in case anyone else has done the calculations.
(just to ward off "ask your accountant" statements).

So - I understand from accountants that they are recommending a lower salary for 16/17 due to termination of the employers NIC incentive. I had read somewhere that this only applies to companies with 1 employee.

Mrs Techjinx has started running the social media accounts for an online toy business from home and getting between £600 and £1100 a month as a sole trader (ie no LTD) for her troubles. Not been worth putting this through my Ltd so far as its below the personal allowance so no tax to pay on the money. She also gets half the dividends as owns half the shares but not currently an employee.

So my question in advance of the accountants coming back on this is, will it be worth adding her as an employee, paying a bit more to the accountants each month to do payroll but then avoiding the NIC reduction? Plus could pay her pension from company, get her a phone etc.

I'm asking in advance of my accountants coming back as it's an opportune moment to change her contract with the toy guys and make it with my Ltd.

Thoughts?

Thanks