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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15977
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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My wife and I are directors and employees of a limited company

Customer Question

My wife and I are directors and employees of a limited company with no other staff, we pay ourselves minimal salary to avoid paying income tax and employer and employee NI. Dividends are paid when possible.
In respect of tax year 2014/15 our salaries were £7,800 each, which I thought was the correct amount to avoid any NI or income tax. I completed our own tax returns to the Revenue using their new RTI tool.
A few days ago the Revenue contacted me saying that my company owes them £468.34. Subsequently I have checked the records shown under RTI section View Employer Payment Record Entry and the total of income tax deducted from employees is shown as £464. (My fault perhaps, for not checking this prior to submission!!)
I understand from the Revenue that I can make an Earlier Year Update, but prior to doing so could you please:
Explain how the Revenue's RTI calculated the £464?
Why is there a small difference in the amounts of £464 to that expressed over the phone £468.34?
As I wish to avoid NI and income tax where legally possible, could you please advise the maximum amount we could have paid ourselves for 2014/15, as I will make an amendment using the Earlier Year Update?
Finally what is the maximum salary I can take for 2015/16 whereby no ee/er NI is liable?
I do appreciate that our full tax liability is calculated via the annual self assessment.
Thank you.
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi. For regular employees, NIC isn't calculated on a cumulative basis as income tax is. Each week's, month's or annual NIC charge is calculated on the figures for that period alone ignoring what has gone before. See under Earnings Periods on page 5 here. It's different for Directors as you will read here. During the year, you can calculate a director's NIC as you do for a regular employee but at the end of the year, the NIC charge has to to be recalculated on an annual basis. This is a system designed to stop a Director artificially keeping their earnings low for 11 months of the tax year and then making a large one-off payment at the end of the tax year. For the reasons given above, I cannot check your figures as that would require me to have access to the full year PAYE pay record. However, what you can do is to use the tools here to see how the liability is arrived at. You can find the Class 1 NIC thresholds for 2014/15 and 2015/16 here and here respectively. Assuming you pay yourselves evenly over the year, the monthly threshold for 2014/15 was £663 for both employee and employer NIC. The monthly threshold for 2015/16 is £672 for employee NIC and £676 for employer NIC. I hope this helps but let me know if you have any further questions.
Expert:  TonyTax replied 2 years ago.
Hi again.

Something that occurred to me after I had posted my answer to your question is that even if you have incurred a liability to NIC, the first £2,000 of the employer NIC won't actually be payable due to the employment allowance which was introduced for 2014/15. You can read about that here.