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The tax free personal allowance for 2017/2018 is set at £11,500.
The National Insurance earnings threshold is £8,164. Earnings (salary) over this level will have National Insurance contributions due on them.
Both levels will attract Corporation tax relief at 19% however; if you are a one director only company, you will still be ineligible for the employment allowance as with the previous tax year. Therefore if you run with the £11,500 pay structure the company will be liable to pay some National Insurance. Again, this will attract corporation tax relief at 19%.
We have detailed for you worked examples of both scenarios in their simplistic form to help you make your decision.
Based on a ‘profits’ figure of £45,000 see below for workings under both amounts:
|Option 1 Tax Free Personal Allowance||Option 2
Salary to the NIC Threshold
|Gives Taxable Profits of||£33,040||£36,836|
|Corporation Tax Due||£6,278||£6,999|
|Profits Available for Dividends||£26,762||£29,837|
|Dividends Within Personal Allowances||£3,336|
|Dividend Nil Band Rate||£5,000||£5,000|
|Dividend Subject to Tax||£21,762||£21,501|
|Personal Tax at 7.5%||£1,632||£1,613|
|Net Cash Take Home||£36,630||£36,388|
|Total Combined Taxes Due||£8,370||£8,612|
If you have any queries please contact Jane in the payroll department on 01530 267320 or email firstname.lastname@example.org.
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Good tax advice in a friendly and professional manner.
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