Reply to: Employer & Employee NI Contributions When Going Perm to Contract

[Greg@CapitalCity]

What about in his case where he has ended an employment with his umbrella mid-way through the year and has then become director of his limited company. Is this an exception too or does it only work the other way around?

It only works the other way around. In the case you mention, the NI threshold for the new Director is calculated on a pro rata basis from when the Directors appointment took place.

[Hex]

There is an exception that if the directorship ends during a tax year, you would receive the full allowance and then effectively receive the allowance again when you start a new employment.

Alan

What about in his case where he has ended an employment with his umbrella mid-way through the year and has then become director of his limited company. Is this an exception too or does it only work the other way around?

[Nixon Williams]

Alan,
By pro-rata do you mean that if for example I became director 3/4 way through the tax year the allowances would be 1/4 of £7,225 and £7,072?

Basically, yes.

Alan

[Coolshot]

Assuming that you are a director of your own company, then you do not 'receive' the full allowance if you become a director part way through the tax year, basically it is split on a pro-rata basis.

The employee's limit for 2011/12 is £7,225 and £7,072 for the employer.

If your new employment is as an 'employee' ie not a director, then the NIC threshold is applied per month/week depending upon how often you are paid.

So to sum up, you do not receive multiple NIC free income if you start several jobs during a tax year.

There is an exception that if the directorship ends during a tax year, you would receive the full allowance and then effectively receive the allowance again when you start a new employment.

Alan

Alan,
By pro-rata do you mean that if for example I became director 3/4 way through the tax year the allowances would be 1/4 of £7,225 and £7,072?

[Nixon Williams]

NI is calculated seperately for each employment. So what you have already paid via a previous employment will be irrelevant in calculating what you have to pay for this new one.

The NI bands start from scratch again for each employment, so you can earn £7,072 from this new employment without having any NI liability (employer's or employee's).

Assuming that you are a director of your own company, then you do not 'receive' the full allowance if you become a director part way through the tax year, basically it is split on a pro-rata basis.

The employee's limit for 2011/12 is £7,225 and £7,072 for the employer.

If your new employment is as an 'employee' ie not a director, then the NIC threshold is applied per month/week depending upon how often you are paid.

So to sum up, you do not receive multiple NIC free income if you start several jobs during a tax year.

There is an exception that if the directorship ends during a tax year, you would receive the full allowance and then effectively receive the allowance again when you start a new employment.

Alan

[Hex]

Hi
I have recently moved from an Umbrella Co to Ltd Co. I've earned around £45k so far this year with the ubmrella, all PAYE. How should the deductions for employer & employee NI be handled now I'm a director? I pay myself a salary of £20k.

I've been reading this

http://www.hmrc.gov.uk/nitables/ca44.pdf

but its not 100% clear how much further NI I must pay this tax year.

NI is calculated seperately for each employment. So what you have already paid via a previous employment will be irrelevant in calculating what you have to pay for this new one.

The NI bands start from scratch again for each employment, so you can earn £7,072 from this new employment without having any NI liability (employer's or employee's).

[JoJoGabor]

Sorry, I was genuinely interested if there was some sort of working practices review service. Couldnt quite figure out how it would work

[Coolshot]

I think what JoJo is getting at you have the contract reviewed. You do not know what the working practices are until you hit site i.e. how they treat you on site. You could have a substitution clause in your contract but it is quite likely there is no way in hell they will honour it for example. Contract and working practices can be very different things.

Have you been on site and passed info on to QDOS?

I have starting working at the client site. I had a fairly good idea of what the working practices would be before I started which was how I answered the questions in the review. However now that I'm here I do intend to check back over my responses & update QDOS.
I started with a question on NI, this feels like some sort of test!

[northernladuk]

I used the services of Qdos Consulting.

I think what JoJo is getting at you have the contract reviewed. You do not know what the working practices are until you hit site i.e. how they treat you on site. You could have a substitution clause in your contract but it is quite likely there is no way in hell they will honour it for example. Contract and working practices can be very different things.

Have you been on site and passed info on to QDOS?

[Coolshot]

How did you get the working practices reviewed?

I used the services of Qdos Consulting.

[JoJoGabor]

I had read somewhere that a low salary/high dividend meant a higher chance of a tax investigation. But the consensus on here seems to be it doesn't make a difference so I may have to re think this. I've had the contract & working practices reviewed for IR35 & passed.

How did you get the working practices reviewed?

[northernladuk]

I had read somewhere that a low salary/high dividend meant a higher chance of a tax investigation. But the consensus on here seems to be it doesn't make a difference so I may have to re think this. I've had the contract & working practices reviewed for IR35 & passed.

You need to read the guides to the right if your question is around how LTD's pay themselves. I am not sure if this is what you are asking as normally people have a clue how a system works before they set one up not after.

HTH

[Coolshot]

I had read somewhere that a low salary/high dividend meant a higher chance of a tax investigation. But the consensus on here seems to be it doesn't make a difference so I may have to re think this. I've had the contract & working practices reviewed for IR35 & passed.

[Waldorf]

First, why pay such a large salary? I take £7072 which is more tax efficient.

Directors pay nic on a cumulative basis, so until your salary has exceeded the nic free limit you will not pay nic.

I seem to recall that when I started there was some funny rule about starting part way through the tax year but ask your accountant.

[Coolshot]

Previous threads with questions about perm to contractor situations mid year can be found below

http://forums.contractoruk.com/accou...scal-year.html

http://forums.contractoruk.com/busin...-question.html

http://forums.contractoruk.com/busin...mployer-2.html

You need to read the guides to the right if your question is around how LTD's pay themselves. I am not sure if this is what you are asking as normally people have a clue how a system works before they set one up not after.

One of the most important parts of becoming a director is having an accountant who can help you through the pitfalls. There are plenty that post here or on the PCG site. He can help with most of the basic questions as well.

Thanks. I do have an accountant & I have read the guides on here before setting up my company. I will check with them during office hours