It’s not unusual for Directors to take a minimum salary and the balance as dividends. This helps reduce the National Insurance Contributions (NIC), and in some cases Income Tax. The important point to achieve is a salary that qualifies for state benefits, including state pension, but without having to pay NIC contributions.

In the tax year 2018/19 the NIC rate is 0% for annual earnings between £6,032 to £8,424. Below £116 per week (£6,032 p.a.) no NIC credit is obtained for state benefit purposes. Whilst earnings over £162.01 per week (£8,424 p.a.) employees’ NIC starts to be paid at the rate of 12%.

Newly appointed Directors are only entitled to a pro rata annual earnings band. So, you need to carefully check that the pro-rata amount does not exceed the maximum level so as not to incur an unexpected liability to pay NIC.

Directors resigning during the year still have the full annual earnings detailed above, so earnings for the whole tax year need to remain within the range of £6,032 to £8,424.

When calculating earnings, to minimise NIC contributions, you need to consider the impact of the National Living Wage regulations. Earnings below this level may affect claims for example of future statutory maternity benefits.

When considering your options for minimum salary levels you should take professional advice to ensure the most tax/NIC efficient salary. Contact us to find out how we can help you in this respect.

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