We propose to set salary levels in 2014/15 for shareholder directors and their immediate family at £9,880 for the year or £823.33 a month. This is exactly equal to the tax free personal allowance less £120 for a benefit in kind where we prepare your personal tax return. Where we don't prepare your tax return, the optimum salary level is £10,000 or £833.33 a month.
A salary of £9,880 will mean paying employee's national insurance contributions (NICS) of £230.88 a year. For directors only, this employee's NIC won't be deducted from your gross salary until next year, between January and March 2015.
In addition, employer's NIC arises of £265.51 in the year BUT in 2014/15, the government is giving an "Employment Allowance" to most employers which provides relief for up to £2,000 in employer's NIC.
This reduction in employer's NIC means overall you are £113 better off paying a higher salary despite having to pay employee's NICs. This saving of £113 applies whatever the company's level of profits.
The one downside perhaps is the need to pay over the employee's NIC to HMRC. If you forget to do this, HMRC may impose interest and penalties which would then counteract the £113 benefit.
Connected companies may only claim the £2,000 Employment Allowance once through one payroll scheme. If you are in doubt whether your business qualifies for this Employment Allowance, there is detailed guidance on HMRC's website (click here) or you can speak to us.
We will automatically claim the Employment Allowance for you during the 2014/15 tax year where we operate the payroll for you.