National Insurance contributions - Directors

[Lewis]

OK but you get a choice of paying later or pay-as-you-go. I'm set up for the latter.

QB.

Do you get a choice? I don't know. I following the NI rules for a director not an employee. There are benefits to this and none for doing it the other way around.

[QwertyBerty]

The NI rate is the same. But directors don't pay until their pay reaches the threshold, whereas employees pay immediately on a pro-rata basis. e.g. If a director is paid £10K per year, a director won't start paying NI until about 6 months into the year, whereas an employee will pay on the first month.

OK but you get a choice of paying later or pay-as-you-go. I'm set up for the latter.

QB.

[Lewis]

Agreed .... but my theory is not flawed is it??

Will that mean only 1 SA ( for director ) to be filled .... or does Co Sec also need this to be done.

Having a company secretary is pretty much irrelevant with regards to salaries and dividends. You can pay your partner a salary for book keeping for example. If your partner doesn't work the most efficient payment is £5K each and a 50/50 dividend split. You don't need to split shares based on contribution to business or anything like that. You might however want to consider a higher salary (say £10K) which a lot of accountants recommend due to minimum wage (discussed to death search previous threads).

Being a company secretary doesn't require you to complete a Self Assesment Form but being paid lots of dividends does, so partner will almost certainly need to complete form (not sure of dividend threshold but it isn't very high).

[skelm]

With 50/50 dividends you get potential even more.

Agreed .... but my theory is not flawed is it??

Will that mean only 1 SA ( for director ) to be filled .... or does Co Sec also need this to be done.

[Lewis]

Agreed you longer need to have a Co Sec. But is it not a more tax efficient way to operate if you also pay them the ET ( 5435 ) and have them as a shareholder so dividends can be paid as well?

E.g Director has minimum salary( 5435 ) + say 60% shares for dividends
Co Sec also gets minimum salary( 5435 ) + 40% shares for divis

So nearly 11 K is tax free??

With 50/50 dividends you get potential even more.

[skelm]

Yeah there is a director resignation form and a company secretary form. Note you no longer need to have a company secretary.

Agreed you longer need to have a Co Sec. But is it not a more tax efficient way to operate if you also pay them the ET ( 5435 ) and have them as a shareholder so dividends can be paid as well?

E.g Director has minimum salary( 5435 ) + say 60% shares for dividends
Co Sec also gets minimum salary( 5435 ) + 40% shares for divis

So nearly 11 K is tax free??

[EvilWeevil]

Director's NI is worked out on an annual (pro-rated) basis, whereas employee's is done on a per payment (weekly/monthly) basis.

You can set up the employer's CD so it pays it every month, and then recalculates at the end of the year, if you'd prefer to even out the payments.

[Lewis]

On a tangent, what needs to be done for one of them to resign as a director and become Co Sec still keeping their shares? I assume companieshouse have a form of sorts.

Yeah there is a director resignation form and a company secretary form. Note you no longer need to have a company secretary.

[skelm]

The NI rate is the same. But directors don't pay until their pay reaches the threshold, whereas employees pay immediately on a pro-rata basis. e.g. If a director is paid £10K per year, a director won't start paying NI until about 6 months into the year, whereas an employee will pay on the first month.

That was my initial thought, hence why I figured that anything upto the ET ( 5435 ) was nil ( I guess one could pay voluntary contributions if one wanted to )

Got confused by the 2.30/week which indeed looks like the self - employed figure. However wondered why one director got the letter yet other didn't.

On a tangent, what needs to be done for one of them to resign as a director and become Co Sec still keeping their shares? I assume companieshouse have a form of sorts.

[Lewis]

I know that director's NIC is slightly different from ordinary employees. I don't know the exact details but for the last tax year, the HMRC CD software did an end-of-year calculation before closing off the P11.

QB.

The NI rate is the same. But directors don't pay until their pay reaches the threshold, whereas employees pay immediately on a pro-rata basis. e.g. If a director is paid £10K per year, a director won't start paying NI until about 6 months into the year, whereas an employee will pay on the first month.

[QwertyBerty]

I know that director's NIC is slightly different from ordinary employees. I don't know the exact details but for the last tax year, the HMRC CD software did an end-of-year calculation before closing off the P11.

QB.

[Lewis]

Is this any different from normal NI deducations?

Example scenario:

Company has 2 directors. Both are paid salaries that are on the ET ( £5435 or 453/month ). The rest of their earnings are derived from dividends. HMRC talks about total earnings ( including bonuses ). Is dividends seen as part of total earnings by HMRC?

If i am right, under "normal" NI deductions, the £5435 pays 0% NI same as the tax part? Correct if I am wrong.

Question is asked as I know someone thats has the above situation but one director got a letter from Hector asking for NI for past 13 weeks ( at £2.30/week I think ), the other didnt get one. So slightly confused??

You are right about the 0% NI for directors. The fixed £2.30 a week sounds more like the NI for self-employed people (class 2 NI I think)

[skelm]

Is this any different from normal NI deducations?

Example scenario:

Company has 2 directors. Both are paid salaries that are on the ET ( £5435 or 453/month ). The rest of their earnings are derived from dividends. HMRC talks about total earnings ( including bonuses ). Is dividends seen as part of total earnings by HMRC?

If i am right, under "normal" NI deductions, the £5435 pays 0% NI same as the tax part? Correct if I am wrong.

Question is asked as I know someone thats has the above situation but one director got a letter from Hector asking for NI for past 13 weeks ( at £2.30/week I think ), the other didnt get one. So slightly confused??