National Insurance discussion

[mr.blister]

Hi, as we are on the verge of a new tax year, I was wondering about peoples thoughts on Ltd companies and directors (emplyees) paying National Insurance, specifically those who tend to take a low salary and then dividend from a Ltd company, is it really worth paying salary fractionally or even marginally over the PT NI threshold, or is being content with the NI credit given when salary is paid at the LEL threshold level, enough, and we all shouldn't be to particular about benefits of one over the other

I'd like peoples thoughts on this in general, the pros and cons [benefits to the business and or individual], peoples experiences and dealings

Happy new tax year

 

[Newchodge]

It depends on the number of employees.

If you are a small employer and you benefit from the £2,000 employer's NI allowance, then it is worth paying up to the PAYE allowance (normally £10,600 per year). If you would have to pay employer's NI at 13.8% as well as employee's Ni at 12%, it is not worth it.

 

[mr.blister]

I know it's relatively easy to to work out a salary and dividend (from a Ltd company) to then still pay a min amount of NI and tax (or no tax just NI), though even at the LEL level there is a NI credit related to pension given, though is it advantageous to calculate a salary to pay a min amount of NI instead of simply settling for the NI credit?

I am unsure if one would still gain a NI credit if one paid a min amount of NI from salary or even recourse to benefits from the DWP (which NI are mainly related to), not sure if I'm right with this?, given usually if you haven't paid enough NI (paid only a min amount) you'll have a short fall for a particular tax year which you can make up later (pay a set amount to fill the gaps).

I always wondered, the above, if anyone can shed any light on it.

Thanks

 

[Bob]

For pension purposes, an NI credit is the same as actually paying a contribution and will count towards your required years for a full pension - unless the legislation is changed

 

[PuddlePayroll]

That's how I understand it Bob.
I do find it odd that the NI threshold creeps up so slowly compared to the tax threshold.

 

[mr.blister]

For pension purposes, an NI credit is the same as actually paying a contribution and will count towards your required years for a full pension - unless the legislation is changed

OK, the pension credit is good, as you receive a full year towards your state pension for actually paying nothing in NI, though in-regards to the alternative which is to pay NI, does paying NI at a min amount compared to paying a full amount for a year equate to the same when applying for benefits, as usually there are contribution based benefits and income related benefits, one depends on the amount of NI paid in a year whereas the other takes into account sources of income (which is generally any money ones receives), I do believe, if I'm not wrong, that paying a min amount of NI for a given year will not entitle one to contribution benefits if at all for a long time (not even for the limited duration such benefits are paid for, I think it's 38 weeks), paying less will be a proportion of that 38 weeks duration, where then that person will switch to the income based benefit if such option is present, any one can say if my assumptions are correct, or can add some enlightenment to this discussion?

Also, if a Ltd company employees an immigrant with no recourse to public funds on their visa/BRP, but during their employment they pay some NI, not a lot, let's say a min amount, does the employee then have recourse to public funds thereafter if they are in dire need from DWP funds (public funds), or is it still a no no given their visa/BRP status, even if they have paid into the system, or would it be best for them stay within the LEL threshold to obtain the pension credit? I say this as a scenario to what I am asking above.

 

[Bob]

Specifically why I said "For pensionpurposes". Hopefully someone who knows about benefits will respond later or tomorrow

 

[Newchodge]

You pay NI when your income reaches a certain level. You pay it every time you earn that level, so you have contributed x months or weeks. To be eligible for benefits you have to have contributed or been credited with enough months/weeks in the year. Can't rmember offhand how many.

 

[mr.blister]

I understand, and thanks for your contribution, so homing in on an answer of wheather or not to pay a min amount of NI or keep salary within the LEL threshold (to gain the NI credit) one would opt for the NI credit, as even paying a min amount of NI is no guarantee for receiving any advantages (benefits etc) unless one is prepared in pay the full NI for the year, whatever that is.

Whereas I believe the main aspect of NI for those in business, would specifically be the advantage of receiving the NI pension credit free.

 

[Newchodge]

If you are a limited company it is worth paying yourself up to the tax threshold. You will pay NI @ 12% but save corporation tax @20%.

 

[Bob]

If you are a limited company it is worth paying yourself up to the tax threshold. You will pay NI @ 12% but save corporation tax @20%.

But won't the company also need to pay employer's contributions at 13.8% ?

 

[Newchodge]

But won't the company also need to pay employer's contributions at 13.8% ?

As I said in my earlier post on this thread. there is currently an allowance for employer's NI, which means you don't have to pay the first £2,000. So if there is only one employee, there is no employee NI to pay.

 

[Bob]

Thanks @Newchodge . Thought there must be something I was missing

 

[mr.blister]

If you are a limited company it is worth paying yourself up to the tax threshold. You will pay NI @ 12% but save corporation tax @20%.

How will one save corp tax?

If a business pays no NI, they will still be liable for corp tax from profits, unless you mean that the NI saving of £2000 can be off set against corp tax liability, and thereafter reduce (by £400) a corp tax bill?


Why do you say if the company only has one employee this is not worth doing? Will NI over a year for one employee never match £2000 that could be saved? Hence more than one employee+ will


On another note I gained some feedback from HMRC about employing someone who has the right to work in the UK but which also has stamped in their biometric residence permit (BRP) ‘no recourse to public funds’, regardless of them paying NI they will never be able to claim benefits, as it will still be deemed a breach of their BRP, even though they would be entitled to claim in any other circumstance, as they have paid into the system. This does seem counterproductive, and will keep certain people (foreign legal temp residents) off the working path, unless they consider setting up business themselves.

 

[David Griffiths]

How will one save corp tax?

If a business pays no NI, they will still be liable for corp tax from profits, unless you mean that the NI saving of £2000 can be off set against corp tax liability, and thereafter reduce (by £400) a corp tax bill?

Because the extra salary between the LEL and the personal allowance of £10,600 is tax deductible for the company, but tax free in the hands of the employee (on the assumption there are no outside sources of income)

The saving of £2000 cannot be set against corporation tax profits.

 

[Newchodge]

How will one save corp tax?

If a business pays no NI, they will still be liable for corp tax from profits, unless you mean that the NI saving of £2000 can be off set against corp tax liability, and thereafter reduce (by £400) a corp tax bill?


Why do you say if the company only has one employee this is not worth doing? Will NI over a year for one employee never match £2000 that could be saved? Hence more than one employee+ will


On another note I gained some feedback from HMRC about employing someone who has the right to work in the UK but which also has stamped in their biometric residence permit (BRP) ‘no recourse to public funds’, regardless of them paying NI they will never be able to claim benefits, as it will still be deemed a breach of their BRP, even though they would be entitled to claim in any other circumstance, as they have paid into the system. This does seem counterproductive, and will keep certain people (foreign legal temp residents) off the working path, unless they consider setting up business themselves.

I said it is worth it if you only have 1 employee, as you are unlikely to pay one employee enough to exceed the "2,000 allowance. There will come a point when you employ enough people and pay enough wages to use up the allowance and have to strat paying NI at 13.8$.

I would be more than a little surprised if the 12% NI that everyone has to pay would put off a legal temp resident from taking a job. How else are they going to support themselves? Most would simply see it as additional tax they are required to pay (which is what it is).

 

[Karimbo]

ni is a worthy tax, corporation tax is just a wealth tax. id rather pay myself the full tax free allowance and pay NI than pay below the NI limit and take as dvidends (which isnt tax efficient anyway because the company will pay corportation tax on profits which is higher than NI).

NI pays for your basic state pension, it doesn;t matter how much you pay, it matters than you make regular contributions throughout the year.

 

[mr.blister]

ni is a worthy tax, corporation tax is just a wealth tax. id rather pay myself the full tax free allowance and pay NI than pay below the NI limit and take as dvidends (which isnt tax efficient anyway because the company will pay corportation tax on profits which is higher than NI).

That really depends on expenses as well. Yet point taken.