The end of one tax year, and beginning of the next is always a time of change when it comes to tax, but this time round it seems more significant than at any time over the last 10 years. Here’s a quick run-through of the major issues for our client base….
The Employment Allowance
Two years ago this was introduced allowing all employers a £2k annual allowance against their Employers’ NICs; effectively the first £2k Employer’s NICs for free.
This changes in April…
The good news: the allowance is being increased to £3k. Hurrah!
The bad news: the allowance is removed entirely for employers where a director is the sole employee of the company. Boo!
To explain further: If there are two directors of the company, each drawing a salary, the employment allowance can still be claimed. If there is one director and one non-director employee, the allowance can still be claimed. If there is only one employee on the payroll but he / she is not a director, the allowance can still be claimed.
BUT for those clients where there is only a sole director on the payroll it is bad news and a change in remuneration strategy to paying once again at the secondary threshold for NICs is on the cards
16-17 Remuneration Strategy Recommendations
For those of you who are directors of limited companies paying yourselves a small salary and then taking dividends, your recommended salary rates from April are as follows:
1. If you have salaried employees that already utilise the £3k employment allowance —continue to pay yourselves at the secondary threshold NIC level of £671 / month (rates for this the same for both 15-16 & 16-17)
2. If you are a sole director, such that you do not qualify for the £3k employment allowance, pay yourself at the secondary threshold level for NICs of £671 / month
3. If you have at least two directors / employees on the payroll, you could pay yourself up to the personal tax-free allowance of £11,000 (or £916 monthly). Whether this makes sense will depend on whether you have other sources of income. Please also remember that the net tax (personal and corporation tax combined) savings for this (approx. £235 per person) entail some inconvenience in that from January—March, your net pay will be lower than your gross pay due to employee NICs which will have to be paid over to HMRC.