National Insurance simplified .. please

Discussion in 'Growing and Managing a Business' started by deveritt, Jan 4, 2012.

  1. deveritt

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    Jan 4, 2012
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    On forming a Ltd. company with a Director and a Company Secretary I am now somewhat confused by the National Insurance requirements.

    As a Sole Trader who is Self Employed it was easy, Class 2 every quarter at £2.50 a week and then Class 4 on resultant income totaled up at the end of the tax year.

    However, it would seem as a Founder of a Ltd. company one is an employee, not self employed. As such there are personal NI contributions and employer NI contributions on the income taken from the company by the Director. Yet, it would seem, that if that Director does not take an income from the Ltd company then no NI are payable, unlike the Sole Trader who has to pay regardless.

    Also, is a Company Secretary an employee, and as such employers liability insurance is advised. They too would need to pay employee NI and the company employer NI if I understand it, but again only when they actually take a income from the Ltd company.

    I want to avoid an accountant at this time as the business is only just starting as a Ltd company and cash flow is tight. Anyone any advice on how to work through the NI minefield?

  2. Richard Thompson

    Richard Thompson
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    Aug 7, 2012
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    Hi Dave,

    Depending on the level of contribution you are making it will depend. Pension contributions made via a Ltd Company (therefore an employer contribution) are regarded by HMRC as a business expense and are deducted before corporation tax is calculated (as long as they meet the wholly and exclusively rules).so you would save corporation tax on the payment made.

    You make the employer contribution gross of relief therefore £125pm paid into the pension would be the rough equivalent of £100 after corporation tax. If you were to pay yourself the money via PAYE(Pay As You Earn), you will pay no corporation tax as salaries are also deducted before corp tax but you will pay employer national insurance (13.8%) and employee national insurance (12% or 2% if you earn above the UET) on the salary that you create to pay the contribution the personal income tax suffered is almost irrelevant as you would reclaim that back.

    so essentially you are looking at reducing your NI bill by making the payment through the company.

    Depending on the size of the company you might soon be compelled to make pension contributions anyway as compulsory employer payments are being phased in from October this year (for large companies first but eventually all companies over the next 5 years).

    its worth considering how all of this also impacts on your ability to get a mortgage (depending on the size of pension payment) as a lender would see you with a smaller "income" from the business as not all lenders count employer pension payments within director remuneration calculations.

    i wouldn't go into too much detail on this type of open forum as there is no confidentiality in what you post!but do feel free to get in touch directly if i can be of further assistance as the above is only meant as a guidance point - i couldn't give you a properly worked out recommendation without knowing more about your circumstances.

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    #2 Richard Thompson, Nov 26, 2012
    Last edited: Nov 26, 2012

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