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As you’ll already know, the most tax efficient way of paying yourself from your company has been to take a low salary of £476 a month and then topping up the remainder of your income with a dividend payment (provided that the company is making sufficient profits, of course).
From the 6th April, there will be some changes to the amounts you can pay:
- You will be able to pay yourself a salary of £589 a month, without incurring any tax or national insurance liability. This is an increase of 23% on the amount available during 2010/2011 tax year. This amount is sufficient to maintain your entitlement to the basic state pension.
- Assuming that you pay yourself the £589/month and don’t have any other income, you can pay yourself a net dividend of £31,866 each year before you pay additional income tax
- Tax planning tip: Setup your £589 per month salary as a regular monthly payment and then keep track of the dividends you pay yourself throughout the year. Doing a few sums prior to the end of a tax year will help you pay yourself in the most tax-efficient way.
Changes to National Insurance
- Employer National Insurance Contributions (NIC) will rise by 1% to 13.8% from 6 April 2011. The rate that employees pay will also rise by 1% to 12%.
- To lessen the blow, the government has also raised the employer NIC threshold (the point at which employers start to pay NI) to £136 per week (£7,072 per year).
- Tax planning tip: Instead of increasing salaries for some employees, you could make pension contributions on their behalf instead. There is no tax or National Insurance to pay on employer pension contributions, so it can be of significant financial benefit to both the company and the individual.
- Another tax planning tip: If you are planning on paying bonuses to staff, doing so before 6 April will save you the 1% increase in NIC (bonuses are treated in the same way as salaries). Every penny counts, as they say