Child benefit and national insurance

[Cerialkiller]

Can anyone advise me about this? I run a small business and have not been making national insurance payments because I have children under 12 and so was under the impression that this covered NI credit.

However when i last spoke to my accountant he advised that i pay myself £1047 odd a month to 'qualify' for maximum NI for the year. Google isn't helping other then to say, yes you get credits, is there some kind of tiered system where you get MORE pension is you pay above a certain threshold or something? I asked my accountant to double check (he frequently misses details like childcare related stuff) but now he's so busy with tax year stuff that I can't speak to him.

I really have to decide before the end of the month (tuesday next week) so would appreciate if anyone knows if there is any benefit to paying myself this each month. It's much more tax efficient not do this as paying myself in dividends will save me money each month.

I always thought the NI credits were for those not working - ie SAHPs.
You are working so you should pay yourself.

They’re credits for people who fully stay at home to raise young children.

Sounds like he is suggesting paying yourself at the primary threshold for NI (£1048 per month), which is the the point at which you start paying some NI payments on a salary. This would earn you Class 1 credits for NI, which covers pension contributions, but also contributions towards other benefits like new style ESA and contributions based JSA.

Getting Class 1 contributions doesn't qualify you for a higher rate of state pension, it just covers more contributions-based benefits than Class 3 NI contributions. Class 3 contributions are the ones you get with Child Benefit. It covers your state pension contributions but won't cover you for new style ESA or contributions-based JSA.

I run a company and pay myself above the lower earnings limit (£533 per month) but below the primary threshold (£1048 per month). If you are trying to minimise salary costs then I don't understand why he is encouraging payments so far above the lower earnings limit. As long as you pay yourself above the lower earnings limit, you will still get Class 1 contributions but you won't have to pay any NI payments until you hit the primary threshold

That's really well explained thank you. Can't see me needing those other benefits to be honest. We are covered by a heap of insurance protecting our incomes etc. Yes i think my accountant is very good at the basics but struggles with bespoke cases that involved incomes that are low enough to get child benefit, tax free childcare and free hours.

No you get tax credits while you have a child under 12 regardless I believe.

@Cerialkiller Tax Credits and National Insurance Credits are not the same thing.

Do you have other income/earnings?

If not, it's more tax efficient to pay wages to use up your tax free personal allowance of £12,570 and then pay dividends for anything extra than that.

If you don't pay a wage and take it all as dividends, it costs you more overall in tax (company gets no tax relief on dividends whereas it would get tax relief on the wage!).

It's not just credits for NI, as said above, it's also for other state benefits such as potentially some unemployment or illness related benefits where you need to have "earned" a certain level of wages to qualify.

And let's not forget Covid Furlough! If you paid yourself fully in dividends, you got no covid grants, whereas those who paid themselves wages were eligible (partly at least) for furlough claims from the Govt.

Optimum position for someone with no other income is:

First 12,570 of "drawings" as wages,
Then dividends for surplus/excess as required.