James Sheard here to help you save tax with The Accountancy People. Today I’m talking about pay for Directors and Contractors.
Currently we normally advise directors to pay themselves just below the national insurance limit to minimise their tax. From April 2014 all companies will not have to pay the first £2,000 of employers national insurance. The effect of this is that for director only companies it will be beneficial to pay employees national insurance up to the start of the basic rate tax band. The most tax efficient salary will be £10,000 – a 30% increase! We’ll advise you what to do at the appropriate time.
Should I have a Limited Company?
The opportunity of operating a business under a limited company has become much more accessible than it used to be. A company can be set up with just one director who is also the only shareholder (owner) but is incorporation right for you?
This is a huge area and one that we can only scratch the surface of here but here is a summary of the key issues:
Tax on profits –
Sole traders and partnerships pay tax at 20% on their first £32,010 of profits after deducting their personal allowance and then 40% on higher rate profits, eventually 45% if they reach £150,000 of profits. Companies pay to at 20% on all profit up to £300k, 23.75% from £300k to £1.5k and £23% thereafter.
National Insurance –
Sole traders and partnerships pay National Insurance at 9% on their profits. Companies do not pay National Insurance and neither do their owners if you pay the right level of salary.
Limited liability –
Companies benefit from offering protection to their owners by limiting the amount that they will be personal liable to pay if the business gets into financial difficulties.
If you have built an intangible asset in the business – customer base, loyalty, good reputation, essentially an ability to make profits and something that a third party would be willing to pay for – you can “sell” this to the company and benefit from huge tax savings