Many director shareholders take a minimum salary and any balance of remuneration as dividends. This tends to reduce National Insurance Contributions (NICs), and in some cases Income Tax. The planning strategy is to pay a salary at a level that qualifies the director for State benefits, including the State Pension, but does not involve payment of any NICs. Planning notes Based on the above considerations it will generally benefit director shareholders of small companies to pay themselves an annual salary of £8,164 for 2017-18 - thereby securing credits for State benefits but avoiding any NIC charge - and take any balance of their annual remuneration package as dividends. In certain circumstances, taking a lower salary, but staying within the £5,876 to £8,164 band, would be equally effective. Fixing an appropriate salary level should be decided by considering all the factors that influence liability for a particular taxpayer. Other points that directors should be aware of: Directors considering their planning options for the first time are advised to take professional advice as there are a number of considerations to take into account when setting the most tax/NI efficient salary. We, of course, would be delighted to help. Source: HM Revenue & Customs | 19-07-2017Class 1 NICs zero rate band
For 2017/18, the NIC rate is set at 0% for annual earnings in the range of £5,876 to £8,164 inclusive. Earnings in this band range qualify for NIC credit for State benefit purposes. At £112.99 per week (£5,875 p.a.) no NI credit is obtained for State benefit purposes. At £157.01 plus per week (£8,165 p.a.) NI contributions start to be paid at the rate of 12%.