Hello Adrian,
You need to pay yourself an annual salary of above £5,824 (2015/16) in order to qualify for state pension. You can pay yourself up to £8,060 to avoid paying any National Insurance.
As you are no more self employed you should inform HMRC to deregister and stop paying further class 2 NI. You can do this online.
Always happy to help.
Kassim
Hallys & Co Chartered Accountants
Thank you very much Kassim.
This sounds like great news, if I am allowed I would like to ask a question.
If I choose to pay myself 8,060 per year and take the rest as dividends, could be the case that they will say that I have pay no nic and that I will not have a pension ?
What is the actual value of the state pension ?
Many thanks for your understanding someone like me who is not up to date with the nic and pension matters.
Kind regards
Adrian
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This is just my personal opinion. Advice should be sought from a suitably qualified Accountant.
P.S. I only ride a motorbike because I want to dry my clothes faster
Hi Adrian
It will be worth ringing the NI helpline as they can provide a forecast of the pension available to you based on qualifying years paid into the pot. Would say though that they will then probably send you a bill for any missing years, if they havent already - not that you have to pay it. I had 28.5 years in when I took redundancy in 2007 - you get full pension after 30 years (or you did, sorry that may have changed recently!), but that doesnt mean you can stop making payments (unfortunately). The maximum amount you can get is currently £115pw will 100% contributions. Will there even be any more in the pot by the time we all retire?!! Worth considering all your options including taking a personal pension.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Funnily enough, I'm just filling in an email to NI requesting details of how many qualifying years I have.
The rules change from next year. The pension rises to a maximum £151 a week and you need at least 10 years to qualify.
https://www.gov.uk/new-state-pension/overview
In answer to Adrian's question.
"If you earn above the Lower Earning Limit (LEL) for National Insurance, currently £112 per week but below the Primary Threshold (£155 per week), then you wont actually pay any NI contributions on that wage but your record will be automatically credited with basic NI credits for that week"
Funnily enough, I'm just filling in an email to NI requesting details of how many qualifying years I have.
The rules change from next year. The pension rises to a maximum £151 a week and you need at least 10 years to qualify.
https://www.gov.uk/new-state-pension/overview
In answer to Adrian's question.
"If you earn above the Lower Earning Limit (LEL) for National Insurance, currently £112 per week but below the Primary Threshold (£155 per week), then you wont actually pay any NI contributions on that wage but your record will be automatically credited with basic NI credits for that week"
I thought I would say 'currently' as they tinker with it quite a bit. When my letter arrived demanding payment they wanted £600+ for the missing part year, which wouldve meant I would have got an extra £3pw, but I worked on the basis that I would ratherkeep the £600 in my pocket/I wouldnt miss the £3pw (because I do have a personal pension) assuming that the payments at that level would actually happen by the time I retire and they havent scrapped the state pension for anyone with a personal pension by then (or some other daft notion). Now Im back on the Limited Company payroll I might get my extra £3 back. Yey.
Adrian - Also worth pointing out that the 10 years to qualify is to get some - will not be that amount as its a max.. Plus yes de-register from being self employed if you are no longer self employed (as well as running some through a Limited Co)
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
As if I need to tell the banker that those figures don't work out in your favour.
Assuming an available interest rate on long term investment at 3% of £600 invested now, tax on savings at 20% and inflation at 4% and (say) 15 years to retirement (if the Government ever lets anyone retire!).
£600 invested now would be worth £836.28 in 15 years but with an equivalent buying power of only £482.93.
The income that the £600 would initially produce adjusted for inflation would be £14.49 per year with a constant source of £836.28
Conversely, using the £600 to produce £3 per week (£156 per year) starting in 15 years (as though it was £3 then rather than the inflated version of £3 now) it would in real terms be worth £90.09 per year.
If we take £3 per week now and inflate that to its value in 15 years that would (using the above criteria) actually be £4.54 per week (£235.96 per year, or £136.26 in real terms taking inflation into account).
All in all, your better off with the state pension than the £600 (taking inflation, tax and interest into account at the above rates you would actually need to invest around £5600 now to return the equivalent of the NI related pension payment of £3 per week)
The above was just a fun calculation and in no way constitutes advice.
p.s. I love Excel...
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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.
Glad to see you keeping yourself occupied with lots of fun toys
Your argument is only flawed by not having access to the full facts ( so before you correct me - not flawed at all, although I havent checked your workings as Im sure they are spot on). As I had 28.5 years in and only had to do 1.5 more qualified I figured at that point I wouldnt be a 'Lady wot lunches' forever and would return to the rat race and be paying my dues.......how right was I. So Ive since 'paid' (eh hmm) another 1.5 years worth whilst still having the £600 burning a hole in my pocket - well under the mattress. lol. The unfortunate thing is that they dont stop collecting when you reach 30 years but I dont need to pay any more....unless of course they change that rule ( or have already done so without me knowing!)
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
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.
Hi Adrian
Got the impression you were no longer self employed hence the comments from Kassim and myself to look to de-register. If you are still self employed as well as an employee of your own limited company then no-one could advise without knowing a lot more of your personal circumstances. I'm not qualified to give tax advice and this angle would need to be considered so you would need to seek professional advice.
If you do just pay yourself a wage between the LEL and PT, that John mentions above, or indeed if you pay a wage above the PT up to your personal allowance/ more then you will NOT get a full state pension UNLESS you have enough qualifying years. You need 10 qualifying years to get SOME state pension.
You can get the NI number via google, if I get a mo I will hunt it down for you.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Ive just tried the online request - wanted inside leg measurements. Not just address and NI number. It wanted a pile of other stuff including when I changed my name and date I was married, plus when I was divorced - frankly I cannot recall as I have wiped them from my memory. I tried to just put the year in, but it wanted specifics so I made it up, lol! I wonder what will happen now then - I reckon I will still get a sensible answer as HMRC have my correct address! I know they didnt want this much over the phone - so it might be easier to go for the phone option Adrian - they will not give you a figure there and then, but can tell you how many qualifying years and at least you can ask them questions you may have.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Thank you very much for helping me Joanne,
Sorry for the extremely late reply as I had to work more than usual these days so I got home just to sleep.
I have called HMRC nic department at 0300 200 35 05
and after 25 min of waiting, finally a polite gentleman has answered the phone and de-registered me from self employment and said my nic conrtribution are ok.
I am not an expert and I did not knew what ok really means, but I will dig more to see if I need to pay something extra to be up to date with my contrib.
For now, I have set my salary at £671.
I hope is a good strategy.
I wish Joanne and everyone on this forum a lovely evening.
Always useful information and quality advice.
Thank you very very much.
Adrian
__________________
This is just my personal opinion. Advice should be sought from a suitably qualified Accountant.
P.S. I only ride a motorbike because I want to dry my clothes faster
As a the sole director of your company, the optimum annual salary is £10,600 or £883.33 per month. If this is your only income and you are a basic rate taxpayer this will use your annual allowance and therefore there will be no tax to pay. You will however have to pay Ees NIC @12% on the difference between the NIC allowance of £8060 and £10,600. As long as you claim the Employers £2,000 allowance you will have no Ers NIC to pay. If you only take a salary of £8060, then any further income would have to be dividends from profits which would be subject to CT @ 20%. So you could make tax savings for yourself/your company of £203.20 (£10,600-£8060=£2540 x 8%).
When my letter arrived demanding payment they wanted £600+ for the missing part year, which wouldve meant I would have got an extra £3pw, but I worked on the basis that I would ratherkeep the £600 in my pocket/I wouldnt miss the £3pw (because I do have a personal pension) assuming that the payments at that level would actually happen by the time I retire and they havent scrapped the state pension for anyone with a personal pension by then (or some other daft notion). Now Im back on the Limited Company payroll I might get my extra £3 back. Yey.
