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 | ||
