What is the optimal monthly or weekly salary that can be paid by an employer without incurring a liability for the employer or employee for National Insurance (NICs)?

Look up National Insurance rates for 2015/16:

  • It is important that the employee or director is paid over the Lower Earnings Limit (LEL) for NICs in order to qualify for certain state benefits. The LEL is £112 per week.
  • Employer's secondary class 1 contributions are paid when pay exceeds £156 per week.
  • So the optimum amount to qualify for benefits that an employee or director needs to earn and avoid NICs is between £112 and £155 per week, or between £5,824 and £8,060 per year.

Taking advantage of the £2,000 NICs allowance in 2015/16

If an employer would rather pay a higher salary in order to claim the £2,000 Employer's NICs allowance, it could pay a salary of £22,605 or more, however you would then be subject to class 1 NICs as an employee. The optimum salary for both NICs and for the employer claiming the Employer's NICs allowance works out at around £10,600 p.a see Employment Allowance NICs  for the different variations.

Tax planning for company owners

Tax saving in the UK also involves managing the increased burden of tax penalties and administration. Payrolls are now filed under Real Time Information (RTI) reporting and due to automatic penalties under RTI most employers will see the benefit from taking a route which minimises administrative burdens and the risk of penalty.

An employer can register an annual scheme for RTI. This is suitable for owner-managed companies where the director(s) pays a one off salary, perhaps within the limits suggested above.

What is the optimal level of salary and dividend to pay and still remain a basic rate taxpayer?

For workings see Do I pay a salary or dividend 2015/16?

Don't overlook the requirements of the National Minimum Wage. However, there are special rules for directors

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