National Insurance Threshold Changes
You have probably heard the government making a big noise about reductions that come into force from 6th Jul 2023 that is said to reduce the amount that employed and self-employed people pay by over £300 per year.
This article focuses on small business owners who have for many years taken a small monthly salary and topped up their income with dividends.
AS IT WAS
A company owner and director takes a salary of £758 per month and tops up his income with dividends. £758 is above the Lower Earnings Limit (LEL) of £533 per month. This ensured that employees would receive the benefits of having made contributions without actually paying any National Insurance.
There is a table here which shows what contributions count towards.
The company also didn’t pay any National Insurance on the salary as it was just below the Secondary Threshold (ST) of £758 per month.
There is another figure to consider – the Primary Threshold (PT) which was £823 per month. Employees started paying National Insurance on earnings above this figure.
It was judged to be most beneficial to pay a salary of £758 as neither the employer or employs would pay and NI and the employee would receive the benefits referred to in the link above.
AS IT IS FROM 6TH JULY 2022
The only threshold that has changed is the Primary Threshold which has increased to £1,048 per month. Employees will therefore pay no NI but still receive the benefits if they increase their salaries to £1,048 per month.
Should director owners increase their salaries to the new PT? Rishi says it will save you £360 per year. Is that true?
It’s a bit of a stretch in these circumstances as the owner director on a salary of £758 wasn’t paying them in the first place. Additionally, the company will pay National Insurance on earnings above the ST of £758 at a rate of 15.05%. Taking the additional salary will therefore cost the company £262 over the remainder of the 2022/2023 tax year.
Corporation tax hasn’t been included in these figures and personal circumstances will always vary.
Please contact us to discuss your own situation but please don’t rush to increase your salary as you may get a nasty surprise.