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Higher salary for contractors post national insurance rise

 

Written by Ray Coman

 

Since the increase in the employee's national insurance limit announced in the Spring Statement a new opportunity exists for contractors to save tax through a higher salary payment.  Since this salary payment will give rise to national insurance it is recommended that the £2,808 differential is paid as a bonus in March 2023.  This minimises the number of payments to be made to HMRC and postpones payments as far as possible.  The tax saving of £387 is illustrated in the table below:

   Salary to employer's threshold Salary to employee's threshold  Difference in liability
  £ £ £
Notional profits 50,000 50,000  
Salary 9,100 11,908  
Employer's National Insurance (@ 15.05%)   423 -423
Taxable profit  40,900 37,669  
Corporation tax @ 19% 7,771   7,157 614
Distributable profits 33,129 30,512  
Income tax position
Salary 9,100 11,908  
Dividend to personal allowance 3,470 662  
Dividend to dividend allowance 2,000 2,000  
Residue of dividend 18,559 15,942  
Income tax 1,392 1,196 196
Overall tax saving     387

 

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