Assuming no other income the best salary to take in 2015/16 is £10,600 (or £883.33 per month). This is not necessarily the best salary if you have employees or other income though.
Who does this apply to?
This guidance applies to the majority of our Contractor and Small Business clients but consider if all the following apply to you:
- You own your company so can take dividends out of it
- You are on the standard 1060L PAYE Tax Code
- You do not have employee’s that are likely to have an Employer’s NIC liability of £1,600 or more.
When we refer to the 2015/16 tax year we mean from 6 April 2015 to 5 April 2016.
Our recommendation – £10,600 per year
The Government has held on the £2,000 Employers National Insurance Allowance which means it once again makes sense to pay a salary to maximise your personal allowance even though it means you have to pay a small bit of employees National Insurance.
- We recommend taking a gross salary of £883.33 a month or £10,599.96 a year.
- On this salary you must pay employees national insurance of £304.32 due in March 2016.
- As per last year, we then recommend taking anything over and above this amount as dividends. You can take net dividends (ie the cash amount) of £28,600 this year before incurring any income tax.
Why pay National Insurance this year?
Back in 2013/14 we recommended that owner/managers take a salary of £640 per month, which was just below the national insurance threshold. Since 2014/15 that is no longer the case. This is because the government is giving all small company’s £2,000 off their Employer’s National Insurance bill (not the employee’s NI though). Employer’s National Insurance is 13.8%.
So by exceeding the National Insurance threshold you are incurring employees national insurance of 12p on every £1 above the threshold but at the same time you are saving 20p of Corporation Tax for every £1, so it is worthwhile.
If you pay yourself the advised £883.33 gross salary you will need to make the following payments:
|28th April 2015||Yourself||£883.33|
|28th May 2015||Yourself||£883.33|
|28th June 2015||Yourself||£883.33|
|28th July 2015||Yourself||£883.33|
|28th August 2015||Yourself||£883.33|
|28th September 2015||Yourself||£883.33|
|28th October 2015||Yourself||£883.33|
|28th November 2015||Yourself||£883.33|
|28th December 2015||Yourself||£883.33|
|28th January 2016||Yourself||£790.53|
|28th February 2016||Yourself||£777.34|
|17th March 2016||HMRC||£304.79|
|28th March 2016||Yourself||£777.33|
How to pay HMRC
You will need to make one payment to HMRC for the tax year. The payment details can be found here. You will also need your PAYE Accounts Office Reference to use as a payment reference number. If you don’t know this, ask your Caprica Accountant and they will be happy to send it across to you.