National Insurance And The Limited Company
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17 October 2011
limited company does present to the taxpayer some
significant advantages which have been particularly highlighted with
introduction of the 50% rate of personal income tax from 6 April 2010.
ability to withdraw money from the limited company
for the owner/director via the dividend route has been particularly
the business community and an incentive for small and medium businesses
trade through the protection of the limited company and to enjoy the
of the advantages of the limited company and the
50% rate of tax is that income tax is only paid when money is withdrawn
the company based on the date of withdrawal. Therefore if large profits
accumulated and not drawn out, there will only be a corporation tax
for the company (at either 21% or 28%) and there will not be an income
liability at the higher rate until the money is actually drawn.
advantage of the limited company is the
National Insurance position of the dividend. A salary at the wrong
attract a National Insurance liability whereas dividends at any level
Given the recent increase in both the employees and employers rate of
Insurance 12% and 13% respectively, this tax advantage is more
self-employed businessman who has not incorporated
has some quite hefty liabilities with regard to National Insurance
(class 2 and
Class 4) which increased with the Finance Act 2011.
Likewise, if a director of a company takes a
large salary there are high rates of class 1 National Insurance that
paid on a monthly basis through PAYE.
the small business using the limited company as
the chosen trading vehicle there is the temptation to try and avoid
Insurance altogether and to simply use the dividend route as the only
withdrawing the profits from the company.
In this desire to keep tax and National Insurance to a
proprietor of the business can sometimes overlook National Insurance
contributions altogether and this can be detrimental to the claiming of
state pension and other National Insurance contribution contingent
ideal situation is for all directors to take a
salary which not only reflects the national minimum wage but also
all entitlement to future state retirement pension is protected.
practical tax tip is therefore that directors and
shareholders must not just look to minimising the overall liability at
costs but should look at all areas of planning in the round and the
Insurance position and protection of the state pension should not be
in the desire to maximise savings.
practical advice is for taxpayers to check
their entitlement to state pension by obtaining a forecast from the
of Work and Pensions. This way, gaps in the National Insurance record
remedied, perhaps through the payment of voluntary class 3
About the Author
Supplied by Julie
Butler F.C.A. Butler
& Co, Bennett House,
The Dean, Alresford, Hampshire, SO24 9BH.
Tel: 01962 735544. Email; firstname.lastname@example.org,
the author of Tax Planning for Farm and Land Diversification (Bloomsbury Professional), Equine
ISBN: 0406966540, and the forthcoming Stanley:
Taxation of Farmers and Landowners (LexisNexis)
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Article Published/Sorted/Amended on Scopulus 2012-02-17 15:36:29 in Tax Articles