Reply to: Budget: £2k NI allowance

[Kugel]

It looks like £7,748 is possibly optimal from a purely mathematical perspective, but the amounts are trivial for 2013/14, so it's potentially optimal from an admin perspective to pay £7,696.

From admin perspective it is almost the same. In Q4 you pay NIC instead of notifying HMRC that no payment is due.

[minstrel]

A salary of £7,696 is the level at which no income tax nor any national insurance is payable.

A salary of £7,748 will still exempt you from employees NIC but you would then start to pay employer's NIC.

Sadly, we now have three different levels at which the three taxes on employed income starts, so employee NIC is payable when the annual salary exceeds £7,748, employer's NIC is payable when the salary exceeds £7,696 and income tax is payable when the salary exceeds £9,440!

These are all based on 2013/14 rates and assumes normal working age, as the figures will be different if you are at retirement age.

Thanks for clarifying Alan.

It looks like £7,748 is possibly optimal from a purely mathematical perspective, but the amounts are trivial for 2013/14, so it's potentially optimal from an admin perspective to pay £7,696.

[psychocandy]

A salary of £7,696 is the level at which no income tax nor any national insurance is payable.

A salary of £7,748 will still exempt you from employees NIC but you would then start to pay employer's NIC.

Sadly, we now have three different levels at which the three taxes on employed income starts, so employee NIC is payable when the annual salary exceeds £7,748, employer's NIC is payable when the salary exceeds £7,696 and income tax is payable when the salary exceeds £9,440!

These are all based on 2013/14 rates and assumes normal working age, as the figures will be different if you are at retirement age.

So you could pay yourself £52 a year more and pay no more tax and just pay employers NI of 13.2%?

£52 paying 20% CT = £10.60
£52 paying 13.8% NI = £7.17

LOL. There we go govenment thats £3.43 in voluntary taxes I'll pay so stop moaning. :-)

[LisaContractorUmbrella]

Before everyone gets too excited about their rebate:

"1. National Insurance: £2,000 employment allowance
The Government will introduce an allowance of £2,000 per year for all businesses and charities to be offset against their employer Class 1 secondary NICs liability from April 2014. The allowance will be claimed as part of the normal payroll process through Real Time Information (RTI). The Government will engage with stakeholders on the implementation of the measure after the Budget and is seeking to introduce legislation later in the year.

They haven't legislated yet. In fact, by the sound of it, they don't seem sure how they're going to deal with it

[Nixon Williams]

Alan - can you please share how you work out the £7,696 figure for 2013/14?

I worked it out as £7,752 (£646 x 12).

Primary threshold £149 * 52 weeks = £7,748

£7,748 / 12 = £645.67. Round it up to £646 as the NI tables seem to allow it.

A salary of £7,696 is the level at which no income tax nor any national insurance is payable.

A salary of £7,748 will still exempt you from employees NIC but you would then start to pay employer's NIC.

Sadly, we now have three different levels at which the three taxes on employed income starts, so employee NIC is payable when the annual salary exceeds £7,748, employer's NIC is payable when the salary exceeds £7,696 and income tax is payable when the salary exceeds £9,440!

These are all based on 2013/14 rates and assumes normal working age, as the figures will be different if you are at retirement age.

[kingcook]

But Employer NI is 13.8% on salary between the ST and the PT.

13.8% Employer NI is less than 20% CT, so surely it's "optimal" to pay up to the PT?

That is correct, but there has been argument that the admin is not worth it. Can't recall the exact amounts, but it was peanuts. We're talking literally a few quid.

[minstrel]

You need to look at the Secondary Threshold (ST) on HMRC documentation, not the Primary (PT)

But Employer NI is 13.8% on salary between the ST and the PT.

13.8% Employer NI is less than 20% CT, so surely it's "optimal" to pay up to the PT?

[kingcook]

Alan - can you please share how you work out the £7,696 figure for 2013/14?

I worked it out as £7,752 (£646 x 12).

Primary threshold £149 * 52 weeks = £7,748

£7,748 / 12 = £645.67. Round it up to £646 as the NI tables seem to allow it.

You need to look at the Secondary Threshold (ST) on HMRC documentation, not the Primary (PT)

[minstrel]

And I guess you need to make allowance for savings/other income too?
If you pay salary up to £10K and forget about, say £1000 interest or something then you're going to end up paying NI PLUS tax on the £1000.

Yes - other income will definitely have an effect, so need to take it into account.

[psychocandy]

There will be a marginal benefit of taking the salary to the £10,000 PAYE threshold, although this marginal benefit will reduce further if you are a higher rate taxpayer.

Of course under RTI (Real Time Information) you will also have to make quarterly payments of the NIC to HMRC.

Remember that this is from April 2014, the most efficient salary for 2013/14 is still £7,696.

And I guess you need to make allowance for savings/other income too?
If you pay salary up to £10K and forget about, say £1000 interest or something then you're going to end up paying NI PLUS tax on the £1000.

(which would be 12% more than you need to really - £120 lost in this case)

In a way, I can see why accountants recommend this. Gives you a bit of slack before you start paying tax.

[minstrel]

The most efficient salary for 2013/14 is still £7,696.

Alan - can you please share how you work out the £7,696 figure for 2013/14?

I worked it out as £7,752 (£646 x 12).

Primary threshold £149 * 52 weeks = £7,748

£7,748 / 12 = £645.67. Round it up to £646 as the NI tables seem to allow it.

[psychocandy]

A couple of hundred quid for doing relatively little isn't that trivial in my book. As I understand it, with RTI any payments need to be reported even if they are below the NIC threshold.

There is therefore relatively little admin saving in paying below the NI threshold than paying above. The only real difference is whether you want to spend a couple of minutes every quarter sending HMRC a small BACS payment.

Agreed. But as NW say, its 2014. My figures were guesses - not sure what the recommended salary for 2014 will be?

£160 a year = £40 a quarter saved. Surely you still have to make a PAYE return anyway even if its a nil one so no extra work for accountant? Only difference is having to make a payment each quarter of NI - £60 based on my example.

Hmmm. 2 mins making a payment to save £40 once a quarter.....

And also the percieved (by some) advantage of actually paying 'some' NI (arguable point this one as to whether it makes any odds!).

[minstrel]

The saving will be fairly trivial, and you'd be losing the non-financial benefit of having to keep track of what PAYE you owe/have paid. Not hard admittedly, but for many clients a benefit of paying just below the NIC threshold is that PAYE/NIC is one tax they don't have to keep track of.

A couple of hundred quid for doing relatively little isn't that trivial in my book. As I understand it, with RTI any payments need to be reported even if they are below the NIC threshold.

There is therefore relatively little admin saving in paying below the NI threshold than paying above. The only real difference is whether you want to spend a couple of minutes every quarter sending HMRC a small BACS payment.

[Nixon Williams]

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.

There will be a marginal benefit of taking the salary to the £10,000 PAYE threshold, although this marginal benefit will reduce further if you are a higher rate taxpayer.

Of course under RTI (Real Time Information) you will also have to make quarterly payments of the NIC to HMRC.

Remember that this is from April 2014, the most efficient salary for 2013/14 is still £7,696.

[minstrel]

Yes of course assuming no other non-div income. Im talking about where income is still below the £10K and all other income is in dividends. But I see that savings interest etc will come into it and any of that goes over £10K will be disadvantageous because tax will then accrue.

The way I've always seen it is you're throwing away the rest of your tax free allowance because its better to do this than pay both NI on it?

OK. Not sure of the recommended salary for 2014 to avoid NI but, say its around £8000.

Scenario 1
Salary £8000
NI £0
Dividend £2000
CT £400

Total lost = £400

Scenario 2
Salary £10000
NI (12% but not employers NI) £240
Dividend left £0
CT £0

Total lost = £240

Is this right? So you'd be £160 better off and a warm and fuzzy feeling of having paid some NI.

That's how I see it working out too.