News: March 2014
Take advantage of the £2,000 employment allowance from 6.4.14
The new £2,000 employment allowance that provides relief from paying employers NIC on the first £2,000 of contributions starts 6 April 2014. For many employers the benefit of the £2,000 relief will be obtained in month 1 by reducing employers NIC payable, for others it could take several months before credit for the £2,000 is obtained on a cumulative basis.
This new relief appears to be available to most employers, including one man band companies, and leads us to consider a change of profit extraction strategy from 6 April 2014 as it will be more advantageous to increase directors salaries to £10,000 instead of the NIC threshold of £7,956.
The extra £2,044 will save £409 (20%) corporation tax (£818 for two directors) whereas the additional employees NIC would be just £245 each.
Husband and wife company – from 2014/15:
| Salary | £9,755 net = gross £10,000 |
|---|---|
| Dividend up to BR band | £28,678 net = gross £31,865 |
| Top of BR band | £41,865 |
| Net cash extracted (each) | £38,433 |
| Total extracted | £76,866 |
There would however be 20% corporation tax payable.
Profits before tax £71,695 @ 20% = £14,339 corporation tax, thus profits before salaries and tax would be £91,695.
This results in an overall tax and NIC rate of just 16.2%.
A salary in excess of £10,000 would attract income tax (at 20%) and employees NIC at 12.2%.
Please note:
- You will not get the full £2,000 allowance unless the salary is at least £22,449.
- This Employment allowance is not available for all one man band companies.
- Complex rules apply to those companies inside IR 35 as the salary is a deemed salary.
- Companies who are associated will need special advice as restrictions apply.
- Certain Employers whose activities are wholly or mainly within the NHS may not be eligible for the employment allowance.
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