Reply to: Best salary for 2017/18

[WordIsBond]

One other point to consider is that if the second employee has another source of income it might be better to limit salary to £8,164.

If the income above £8,164 is subject to 20% tax as well as 12% Employees NI, this will be more expensive than the dividend route (19% CT + 7.5% dividend tax).

It's generally only worth paying either employee more than £8,164 if this income also falls within the £11,500 personal allowance.

True. If the second employee has another source of income it might be better, from a tax efficiency perspective, to not pay a salary at all, since the income below £8164 would also presumably be subject to 20% tax, and at some point higher rate tax kicks in. And you don't want a salary you pay to push the second employee/shareholder into higher rate dividend tax, either, even if the salary itself isn't in the higher rate band.

Once you start to talk about other income, you probably need to start running specific numbers with specific scenarios, and perhaps pay for advice.

[EinsteinTax]

Not true. You get state pension eligibility if your annual earnings exceed the LEL, which for this year is £5880, even if you don't pay any NICs.

Edit: The reason to exceed £8164 is if you have two employees, to do it with both, to give eligibility for employment allowance. In that case, the optimal is £11,500 -- you pay no employer NI, you do pay employee NI, but you save corporation tax. Since the CT rate is higher than employee NI, this is worth it and you should pay both employees £11,500.

One other point to consider is that if the second employee has another source of income it might be better to limit salary to £8,164.

If the income above £8,164 is subject to 20% tax as well as 12% Employees NI, this will be more expensive than the dividend route (19% CT + 7.5% dividend tax).

It's generally only worth paying either employee more than £8,164 if this income also falls within the £11,500 personal allowance.

[TheCyclingProgrammer]

Actually no one has properly. I think I was the only one that provided some kind of calculation. At the end of the day you still want to pay some NI Contribution as you want your state pension to carry on.

It was answered by Louisa in the second post of this thread:

If you are the sole employee through your company, I'd recommend £8,164 per annum, then dividends thereafter.

A far more detailed answer - with the same conclusion - was available in the blog post linked to in the original post:

Optimum Directors Salary and Dividends 2017/18 - JF Financial : Online Accountants

[WordIsBond]

Actually no one has properly. I think I was the only one that provided some kind of calculation. At the end of the day you still want to pay some NI Contribution as you want your state pension to carry on.

Not true. You get state pension eligibility if your annual earnings exceed the LEL, which for this year is £5880, even if you don't pay any NICs.

Edit: The reason to exceed £8164 is if you have two employees, to do it with both, to give eligibility for employment allowance. In that case, the optimal is £11,500 -- you pay no employer NI, you do pay employee NI, but you save corporation tax. Since the CT rate is higher than employee NI, this is worth it and you should pay both employees £11,500.

[Drei]

That has already been answered in this thread.

Actually no one has properly. I think I was the only one that provided some kind of calculation. At the end of the day you still want to pay some NI Contribution as you want your state pension to carry on.

@Luisa thanks for the answer and explanation.

[adubya]

Would be nice to know what the optimal salary would be for 1 man company that cannot claim EC. On £12K as a 1 man, I would pay £98 on Tax, £460 on NI and £530 on ENI. Total £1087.89

.

£8164 I believe. £0 on tax, £0 on NI, £0 on ENI.

[TheCyclingProgrammer]

Would be nice to know what the optimal salary would be for 1 man company that cannot claim EC.

That has already been answered in this thread.

[Drei]

LTD with 2 people, we did £1000 a month each so that was actually £12k a year so £24K for two people. Don't mind a little extra NI, Employee Contribution is claimed back on the £24k.

Would be nice to know what the optimal salary would be for 1 man company that cannot claim EC. On £12K as a 1 man, I would pay £98 on Tax, £460 on NI and £530 on ENI. Total £1087.89

If I take £8200 then it goes NI £4.32, ENI £4.97 and pay corp tax at %19 on £3800 which means that I would pay £731.29.

This results in a saving of £356.7...

[Louisa@AardvarkAccounting]

I believe Louisa has noted £8,170 as in order for a company to be eligible for the employment allowance it must have two employees over the secondary ni threshold (£8,164).

Certainly if you can justify paying employee #2 the £11,500 then it makes sense to utilise the employment allowance on that salary also.

Yes that's exactly where the numbers came from.

Thank you for clarifying that one

[WordIsBond]

Thanks, Michael, that makes sense.

[Michael at BI Accountancy]

Care to explain why the second would be £8170? Seems like it should be either £8164 or £11,500. And since the Employment Allowance would be sufficient to cover Employer's NI for two employees at £11,500 (and to spare), why is £11,500 good for Employee #1 but not for Employee #2? But if not £11,500, then why would you go over £8164 to £8170? That makes no sense to me at all.

I believe Louisa has noted £8,170 as in order for a company to be eligible for the employment allowance it must have two employees over the secondary ni threshold (£8,164).

Certainly if you can justify paying employee #2 the £11,500 then it makes sense to utilise the employment allowance on that salary also.

[SeanT]

And I say £1,000,000 salary is much better...

Especially if your business is basically funded by the taxpayer and is currently making a loss, but we don't know of any examples like that now do we?

[SeanT]

Could the rules here be any more confusing?? https://www.gov.uk/government/public...loyer-guidance

[WordIsBond]

If there are two employees through your company, I'd recommend one on a salary of £11,500 and the other on £8,170 per annum. As this way, you can take advantage of the Employment Allowance. Then take dividends thereafter.

Care to explain why the second would be £8170? Seems like it should be either £8164 or £11,500. And since the Employment Allowance would be sufficient to cover Employer's NI for two employees at £11,500 (and to spare), why is £11,500 good for Employee #1 but not for Employee #2? But if not £11,500, then why would you go over £8164 to £8170? That makes no sense to me at all.

Full disclosure: I'm one of those annoying people who doesn't trust his accountant and verifies stuff.

Are you telling us to be cheap and sexist and underpay our spouses without any good tax justification for doing so? What happened to income equality? Haven't you been listening to the politicians?

[AtW]

Nixon Williams are saying £8,160 is.

And I say £1,000,000 salary is much better...