Thanks all for your help yesterday with this, just to follow on from Shaun's post and check that my understanding is right.....
My tax code is 647L, meaning I have a free tax earning limit of up to 6470, therefore to stay under the threshold i could earn up to 6470 divided by 12 months, giving me 539.17 per month, is this correct?
Also I have run three seperate month pay runs so far and nothing has been deducted for NI, therefore is there a threshold for this also, what figure can you earn up to before deductions start for NI?
Lets take a very simple example of where on pays some tax and NI.
Joe bloggs who is a director of XYZ company is paid £8000 per year. Over the tax and NI threshhold but not by much so at least they're paying something.
First lets calculate the tax :
Salary £8000 less £6475 tax free equates to £1525.00 taxable which at 20% tax is £305
Now the NI
Salary of £8000 less £5715 free pay is £2285.
Employee NI contribution (payable out of salary) is 2285 @ 11% is £251.35 Employer NI contribution (payable by the company) is 2285 @ 12.8% is £292.48
The amount that the director would receive is £8000 - £305 - £251.35 = £7443.65 per annum or £620.30 per month or £143.15 per week.
The cost to the company is £8000 + 292.48 (employers NI) = 8292.48
Hope that helps with working through salaries,
cheers,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Just to follow on from Shaun. The reason no NI has been taken is because if you tick the box that you are a director - director's NI is calculated on an annual basis rather than monthly.
Hi, Zoe are you getting 476.04 by: 5715/12? that is what I thought would be the correct calculation, am I missing something here lol. I make that 476.25. But perhaps I am taking the wrong figures????
Morning all, from the above then am I right in understanding that if a Directors wage was set at £476.25 they wouldn't be paying any tax/ni throughout the year? However resulting in them not obtaining their 'stamp'?
I'm slightly confused....it must be me but still seem to be struggling in my head with this one....
If I was to take on a new client, sole director, only person on the payroll and they wanted to stay below tax and NI thresholds and they were on the basic tax code of 647L what is the best way for me to advise on this, so that I fully understand the workings and know where each figure is coming from?
They could pay themselves £539 per month and not suffer any tax as it would just be using their personal allowance, however they would have to pay both employees and employers NI of about £82 and £97 respectively. Pay at £476 and theer will be no tax or ni.
