Who this applies to
Please note this guidance is only suitable for individuals who:
1. Own their own company (so can take dividends);
2. Are on the standard 1060L PAYE Tax Code; and
3. Do not have employee’s with a combined annual Employer’s National Insurance bill of more than £1,650.
If any of these are not the case please speak to your accountant who will advise the optimal salary based on your particular circumstances.
The 2014/15 tax year
The Government has held on the £2,000 Employers National Insurance Allowance which means it once again makes sense to pay a salary to maximise your personal allowance even though it means you have to pay a small bit of employees National Insurance.
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We recommend taking a gross salary of £883.33 a month or £10,599.96 a year.
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On this salary you must pay employees national insurance of £304.32 due in March 2016.
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As per last year, we then recommend taking anything over and above this amount as dividends. You can take net dividends (ie the cash amount) of £28,600 this year before incurring any income tax.
Why pay National Insurance?
Back in 2013/14 we recommended that owner/managers take a salary of £640 per month, which was just below the national insurance threshold. Since 2014/15 that is no longer the case. This is because the government is giving all small company’s £2,000 off their Employer’s National Insurance bill (not the employee’s NI though). Employer’s National Insurance is 13.8%.
So by exceeding the National Insurance threshold you are incurring employees national insurance of 12p on every £1 above the threshold but at the same time you are saving 20p of Corporation Tax for every £1, so it is worthwhile.
Will I be better off this year?
Yes, because of the high salary, you will actually end up saving just over £120 more on tax than you did last year by taking the optimal salary. The benefit of paying yourself a salary compared to no-salary is £2,120!
Remember that if the company is owned by you and your spouse, all of the amounts above can be doubled meaning your tax savings will be increased even further.
Payment amounts and dates to comply with HMRC
If you pay yourself the advised £883.33 gross salary you will need to make the following payments:
Date |
Recipient |
Amount (£) |
| 28th April 2015 | Yourself | £883.33 |
| 28th May 2015 | Yourself | £883.33 |
| 28th June 2015 | Yourself | £883.33 |
| 28th July 2015 | Yourself | £883.33 |
| 28th August 2015 | Yourself | £883.33 |
| 28th September 2015 | Yourself | £883.33 |
| 28th October 2015 | Yourself | £883.33 |
| 28th November 2015 | Yourself | £883.33 |
| 28th December 2015 | Yourself | £883.33 |
| 28th January 2016 | Yourself | £790.53 |
| 28th February 2016 | Yourself | £777.34 |
| 17th March 2016 | HMRC | £304.79 |
| 28th March 2016 | Yourself | £777.33 |
If you are unsure how to make the payment to HMRC in March 2016, ask your Caprica Accountant for payment details.