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Limited company owners - know anything about NI contributions?

(27 Posts)
furrycat Mon 04-Aug-08 16:03:01

We pa ourselves a small wage - £450 a month - and take the rest in dividends. We don't pay tax or NI on the wages. I asked our accountant how this affects our state pension and they said we were fine - but how can we be if we arent contributing NI?

justjules Mon 04-Aug-08 16:04:27

dp does this, will ask him later smile

furrycat Mon 04-Aug-08 16:29:18

thanks

justjules Mon 04-Aug-08 17:56:09

dp thinks you still have to pay the min stamp,

he got in touch with the ni people himself

he pays the 'self employed' amount (no idea what this amount is)

dp also got charged £100 fine for not paying on time (cause he didnt know to pay it)

call the ni people and double check smile

if they tell you any different please let me know

ShrinkingViolet Mon 04-Aug-08 18:09:28

£450 a month is above the level which counts for the benefits you get from payign NI contributions (pension, SMP etc), but not high enough to trigger payemnts. I have a client who does this, who also stresses about her pension etc, but it's perfectly fine. There's a page on the HMRC website which shows the levels at whcih NI payments need ot be made, whcih I can't find at the moment.
But, yes, it's fine, you're treated as though you are making payments.

ShrinkingViolet Mon 04-Aug-08 18:11:33

This is one of the "benefits" of runnign a limited company btw, as you get your full tax free allowance, and then the rest of your income is taxed as dividend which will usually be less than if all of it was salary. And if it all was dividend, you wouldn't get your tax free allowance, as all dividend is taxed.

ChasingSquirrels Mon 04-Aug-08 18:25:06

ditto shrinkingviolet.
By paying yourself an amount in this band (between where NI starts being counted for stamp and the level at which you start paying) you are being attributed with contibutions - and even better they are treated as based on approx £12,000 earnings.

You need to ensure that the company makes a PAYE return each year (even though the amounts are below the levels) so that your contributions records are updated (and I think this is the last year, but if you file online there are incentive payments, we have had a number of clients using the strategy you outline, who have filed online over the life of the incentive and, at no cost to themselves (other than our fees ) have received incentive payments of getting on for £1k).

You can only do it if you are directors and don't have a service contract - otherwise there are national minimum wage implications.

justjules Mon 04-Aug-08 19:08:54

[confused emotion]

dp pays himself £100 a week,

the ni people say he has to pay £2.20 a week,

why would that be?

any ideas?

MrVibrating Mon 04-Aug-08 20:46:25

jj your DP is self employed. If you are self employed you pay £2.30 a week 'Class 2' contributions (unless you have a small earnings exemption certificate) - £2.20 was last year's rate. Furrycat and her DP are employed by a company (see the thread title 'limited company owners') which means that NI is totally different for them.

Furrycat, I think you should check your position re. the state pension. It is normal for people in your position to pay just OVER the NI threshold - say £460 a month. That will make sure you don't miss out on your NI record for the state pension, and you only have to pay a tiny amount of NI and tax.

To get the full basic state pension you have to have 30 years of NI paid or credited (assuming you aren't going to retire in the next couple of years). But until recently, men needed 44 years, and you cannot be sure what changes will be made to the rules in future.

So my advice would be: avoid gaps.

justjules Mon 04-Aug-08 22:37:39

i read the title as meaning the op was owner/md of the ltd company,

my dp is self employed, owns a ltd co, pays himself a wage (£100 a week, technically earns lots more) and takes the rest in dividends minus expenses,

i may have got the thread wrong blush

ChasingSquirrels Mon 04-Aug-08 22:39:07

just jules - if he owns the company and takes a wage then he isn't self employed. Unles he also has a self employment?

justjules Mon 04-Aug-08 22:48:07

[still confused]

dp did a different thing last year and was 'managed' by an outside company,

i think in reading this the current payments are for last year and now he has set up alone it will be different,

can you explain the difference between the two (self employed and company owner) please?

i have promised to help with accounts and expenses as i have just finished ft work myself and had a baby 3 weeks ago,

looking at my stupidity lack of knowledge on this thread i may need to look into collage courses to teach me the basics grin

justjules Mon 04-Aug-08 22:50:10

is it possible that dp owns the company and employs himself?

ChasingSquirrels Mon 04-Aug-08 22:52:42

self employed - you work for yourself, you are taxed on all your profits (income less allowable expenses). You might (or might now) employ other staff.

company - the company is a separate legal entity. The owner (who will also be a director) works for the company and the company pays them a salary (or not - see point earlier re director / no contract and national minimum wage). The profits (income less expenses - including salary but NOT dividend) are company profits and are subject to corporation tax. Any left over profits can be taken by the owners (shareholders) as dividend - which will then be taxed on them (at a rate dependant on their total other income).

Presumably your dh has an accountant? Get them to explain what records you need to keep.

justjules Mon 04-Aug-08 22:57:48

yep, has accountant,

def the company,

he is the director,

i am the secretary grin

like i said, i just had a baby wink

been to busy to pay any attention,

<<note to self, must do more>>

ChasingSquirrels Mon 04-Aug-08 23:00:32

in which case he should not be paying self employed NI - which is what the £2.20 you mentioned sounds like. Presumably the accountant know what is going on - they should pull their finger out.

You don't need to do much - but some simple record keeping should save both time and money at the year end.

justjules Mon 04-Aug-08 23:03:49

thanks chasing (and others) smile

and sorry to the op for crashing your thread grin

Twinklemegan Mon 04-Aug-08 23:03:58

The director of a limited company is not self-employed, he is employed by the company.

When NI becomes due it is payable firstly by him as Class 1 employee's contributions and also by the company as employer's contributions. ShrinkingViolet is right that there is a certain amount you can earn where you get the benefit of NI contributions without having to pay them, but I don't know offhand what that is right now.

Depending on what the company does, it may be classed as a service company and therefore come under the IR35 regulations. This means that tax and NIs are due on almost all the company's income, whether or not the director/secretary receive it as salary. This is because the Government classes them as "hidden" employees of the person they are providing services to.

I used to be a company secretary to my DH.

justjules Mon 04-Aug-08 23:14:10

<<stress>>

dp says he is outside ir35 as he has more than 1 company/recieves payment from more than 1 source,

also, he is registered as a 'service' (does this all make sense?)

so...

should he or should he not be paying £2.20 a week grin

justjules Mon 04-Aug-08 23:16:28

does the 'service' part just allow him to earn money under different guises?

ChasingSquirrels Mon 04-Aug-08 23:17:29

he should not be paying £2.20 a week.

IR35 is quite complex, his accountant will advise him on it (although having more than one source of income is not a guarantee that he isn't IR35, but 3 income streams is good ).

EVEN if he was IR35 he is still taking a salary (and the company would have to pay IR35 tax), he would not be self-employed and does not have to pay self-employed NI.

But seriously, your accountant should sort all this out, copies of any tax related paperwork should go straight to the accountant.

ChasingSquirrels Mon 04-Aug-08 23:18:54

don't know where the 3 income streams came from!
And he has more than one company? Do you mean his company has income from more than one source, or that your dh has more than one company/source of income.

justjules Mon 04-Aug-08 23:23:16

both,

income from more than one source and has just last month set up another company (doing something different but still under the 'service' bracket if it makes any difference)

thankyou for your help.

it is more complicated than i thought,

can you recommend a 'idiot' guide/book to read for beginners?

ChasingSquirrels Mon 04-Aug-08 23:26:20

right, if it is complicated I'll butt out - I don't know the full picture. Have to say though, more than one company just sounds odd - for lots of reasons (more admin, more costs, lowers the company tax limits which can cause problems, VAT avoidance?)
Hope he has a decent accountant.

justjules Mon 04-Aug-08 23:33:46

no,

dont butt out,

i thought i was stressing you too wink

i think that the new company name has been checked with co house to make sure it is not being used already and the domain name has been reg for future net/advertising reference,

but am i right in thinking that the new 'company' is actually a shelf company of the existing one?

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