Tax savings from 6th April 2014
With effect from 6th April 2014, HMRC are introducing an Employment Allowance which enables businesses to reduce the employer’s national insurance liability on salaries paid up to a maximum of £2,000 in the 2014/15 tax year.
Previously, we have recommended a minimum salary of £640 per month so that no PAYE or NI is payable. However, with this new allowance, there is the ability for the company to save around £160 in tax per employee by increasing the salary to its directors and employees from the minimum salary to £10,000 per annum.
No PAYE would be payable on this level of salary, and due to the Employment Allowance, no employer’s NI would be payable either. However, employee’s NI would be payable each month to HMRC.
The saving is made through the company’s corporation tax which would be payable up to 18 months later so there is a cash flow consideration as well.
As it will require you to make monthly payments to HMRC on time to avoid interest and potential penalties, there is additional work required on your part. It will also be important to monitor dividends payable as the increased salary will impact what dividends are available.
Where you have been receiving a salary of £640 per month, we will automatically be increasing this to £663 per month from April 2014 as this level incurs no PAYE or NI. However, if you would like to take advantage of the tax saving which the Employment Allowance brings, please let us know.