tax efficient remuneration 2011-12

New rates of personal allowances and National Insurance rates come into effect in April 2011 This means that the tax efficient salary for many Directors of Small Limited Companies needs to be re-evaluated.

Employers National Insurance contributions at 12% start at £136 per week (£7,072 p.a.)

Employees National Insurance contributions at 13.8% start at £139 per week (£7,228 p.a.)

The personal allowance has increased to £7,475 p.a..

Option 1.
For people with other income (interest received / rental profits) of over £400 per year, the decision will be to pay themselves £136 per week (£589 per month). At this level no tax or National Insurance is payable. Employees are still credited with NI contributions stamp
Option 2.
For people without this extra income, it makes sense to pay £139 per week (£602 per month) – they’ll have to pay some Employers National Insurance at 13.8% on the extra £3 per week but thats all and they’ll receive Corporation Tax Relief on the salary at 20%. A net saving of 6.2%. This saving equates to about £10 per annum but will require a payment of National Insurance (one payment in April 2012 of £20.98) to HMRC. The extra administration of this may make some directors prefer option 1.
As a practice, everyone currently earning £476.25 (the tax efficient salary for 2010-11) will be increased to £589 or £602 per month from April 2011, we’ll be sending out letters to all relevant clients to advise of this.
For tax credits claimants, the position may be different and we’ll advise on this as a separate matter.
For small business tax advice call Chris Root on 0161 621 9973