Paying the Optimum Directors Salary
If like many others you are operating a Director only Limited Company then there are opportunities to take remuneration from the company in different ways to maximise the tax benefits available. The most common of these is to take the Optimum Directors Salary 2015/2016 and take the rest of your remuneration through dividends.
This is of course entirely legal and does not fall into the category of tax avoidance, it is just good tax planning.
By taking a salary of £672 per month (£8,064 per year) you will receive your credit for the year for state pension purposes without actually needing to pay any National Insurance Contribution.
This benefit is available to Directors of a Limited Company as you are not covered by Minimum Wage Legislation.
However with the introduction of the £2,000 Employment allowance in 2014-15 the calculations changed somewhat and another opportunity arose to save some money in a perfectly legal way.
The £2,000 employment allowance enables all employers to reclaim their Employers National Insurance Contributions up to the maximum of £2,000 in the payroll year (6 April to 5 April) The Employment Allowance has now been extended to cover the 2015 / 2016 tax year so this opportunity once again arises.
If you take the full tax free salary of £10,600 you will pay no Income Tax, but you will be liable for an employees National Insurance deduction of 12% and an Employer National Insurance payment of 13.8%. The employer portion of this can be reclaimed through the employment allowance so you will not be paying it.
The Employees National Insurance deduction works out at £304.80 per person and is payable to HMRC quarterly, however the full salary of £10,600 is allowable against Corporation Tax so this will reduce your Corporation Tax charge for the year by the difference between the Original Optimum Directors salary of £8,064 and the Optimum Directors Salary utilising the Employment allowance of £10,600. A corporation Tax saving of £507.20.
The result of this fiddly calculation is that if you run a Director only limited Company you will benefit by £202.40 per year.
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