At a glance

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 2018/19:

  • 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 £116 per week.
  • Employee’s primary class 1 contributions and Employer's secondary class 1 contributions are paid when pay exceeds £162 per week.
  • So the optimum amount to qualify for benefits that an employee or director needs to earn and avoid NICs is between £116 and £162 per week, or between £6,032 and £8,424 per year.

Taking advantage of the £3,000 NICs allowance in 2018/19

The £3,000 allowance is not available in 2018/19 for companies where the sole director is the only employee.

If an employer with one employee (other than a sole director) would rather pay a higher salary in order to claim the £3,000 Employer's NICs allowance, it could pay a salary of up to £30,163: the employee would be subject to NICs and income tax, but the employer’s NIC on this salary would be covered by the allowance.

See Employers’ NIC allowance 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? 2018/19

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

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