Directors pay – the new way to pay yourself in 2014/2015

By Stuart 4 years agoNo Comments

From April 2014 there’s a new way to pay Directors from their Limited Companies. But, it’s not as simple as it used to be!

The introduction of the £2,000 employment allowance has resulted in there being more than one optimal way of getting paid from your company.

Let me explain.

Previously, we have always recommended a salary level just below the threshold for paying employees and employers National insurance (£641 a month in 2013/2014). However, qualifying companies can now reclaim up to £2,000 of employers NI (not employees), so the employers NI stops being an issue. The employees portion of NI will still be payable.

Here are the options…….

 Option 1

The company director can take a salary of £10,000 a year (£833 a month) and pay no personal tax. They would however incur employees NI of £245.28. This would be payable to HMRC. Company directors would need to remember to pay this over to HMRC on time, or risk a penalty.

This option is suitable for those who:

 Have no other sources of income

 Can guarantee that they won’t withdraw more than £38,474 from their company in the year

 Don’t employ anyone

 Happy to remember to pay an additional bill from HMRC and are comfortable with any cash flow issues that may arise.

Option 2

This option keeps the salary payment below the NI thresholds so no NI payments become due. The total monthly salary that can be withdrawn is £663 per month (£7,956 a year). This option is suitable for those who:

 May have another source of income (rental properties, second job etc.)

 May exceed total drawings from the company of £38,474 in the year

 Have employees or may start to employ during the year

 Don’t want to have to remember to pay extra bills to HMRC.

Whichever option is chosen, the maximum amount that can be withdrawn from the company in the year is £38,474 without incurring additional tax charges.

So, if you chose option 1 then you could withdraw £28,678 in dividends before paying tax

If you chose option 2, you could withdraw £30,518 in dividends before paying any tax.

We’ve worked through the numbers and for those who meet all the criteria, option 1 saves £163.52 in tax over the full year (which is £408.80 in Corporation tax less £245.28 Employees NI).

Our recommendation & approach

None of us know exactly what the future will bring.

That being the case, we’d recommend taking a salary of £663 a month, until February next year. If you then meet all the qualifying criteria for option 1, you can pay yourself a bonus of £2,044 in March to utilise the £163.52 tax benefit. Please be aware that HMRC will expect NI payment of £245.28 before the 19th April.

 

 

 

 

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