If you own 100% of your company you are probably paying yourself a low salary and taking the rest of the profits as dividends because this is the most tax efficient thing to do. Each tax year you have to think about what is the best salary to take. There are a number of points to consider.
- To qualify for the flat rate state pension you need a salary of £5,772 (even though you won’t pay any national insurancehttp://www.nidirect.gov.uk/qualifying-for-basic-state-pension ),
- You won’t pay any employees national insurance up to a salary of £8,060,
- If you have no other non-savings income you will pay no tax on your salary up to the personal allowance of £10,600,
- If you have no other employees you will not pay any employers national insurance up to a salary well beyond the personal allowance,
- A salary of over £10,000 might mean that you have to register for a pension scheme under auto enrollment.
The last point is a bit unclear at the moment as the government has been reluctant to firm up on the initial advice that it gave.
A safe option at the moment if you are a “one man band” company is to take a salary of £9,999. This will ensure you use the bulk of your personal allowance, you won’t pay much employees national insurance, no employers national insurance and be sure that the company does not need to register an auto enrollment pension scheme.
Contact us if you need advice.