Look up National Insurance rates for 2014/15:
- It is important that the employee or director is paid over the Lower Earnings Limit (LEL) for NICs in order to qualify for certain state benefits. The LEL is £111 per week.
- Employer's secondary class 1 contributions are paid when pay exceeds £153 per week.
- So the optimum amount to qualify for benefits that an employee or director needs to earn and avoid NICs is between £111 and £153 per week, or between £5,772 and £7,956 per year.
Taking advantage of the £2,000 NICs allowance in 2014/15
If an employer would rather pay a higher salary and then claim the £2,000 Employer's NICs allowance, it could pay a salary of say £22,448, however you would then be subject to class 1 NICs as an employee, see Employment Allowance NICs. for more variations on this.
Tax planning for company owners
Tax planning also involves managing penalty risk. Payrolls are now filed under Real Time Information (RTI) reporting and although HMRC has postponed the introduction of new automatic penalties for RTI most employers will see the benefit from taking a route which minimises administrative burdens and the risk of penalty.
For payroll an employer can register an annual scheme for RTI. This is suitable for owner-managed companies where the director(s) pays a one off salary, perhaps within the limits suggested above.
What is the optimal level of salary and dividend to pay and still remain a basic rate taxpayer?
For workings and a comparison of the current and previous years see Do I pay a salary or dividend?
Don't overlook the requirements of the National Minimum Wage. However, there are special rules for directors
