National Insurance Basics for Limited Companies

Everybody who is paid a salary above the current threshold pays national insurance contributions. These contributions add up to your state pension and various other benefits such as jobseeker's allowance and incapacity benefit as and when you qualify for them. Although they serve this purpose, it has not gone unnoticed that where income tax rates have remained stable, increases have appeared in national insurance contributions instead, allowing further taxation without the breaking of political promises.

Whereas permanent employees will generally have their national insurance contributions calculated on all of their income and deducted prior to receiving it, limited company contractors only pay national insurance on their salary and not on dividends, which is usually the predominant way of retrieving an income from the company. This is one of the reasons why working via a limited company can be incredibly tax efficient. If your salary is small enough, you may not be liable to pay national insurance contributions at all, although it is worth keeping note that paying yourself less than a market rate salary can be indicative of disguised employment when referring to the IR35 legislation.

National insurance contributions for limited company contractors are also paid a little differently to your permanent counterparts. Whereas permanent employees only pay primary class 1 NICs (employee’s national insurance contributions), as your employer, your company will also need to pay secondary class 1 NICs (employer’s national insurance contributions). As you are both the employer and employee, you must pay both classes of contributions.

Primary class 1 NICs are paid through PAYE. For most this will be at 12% of earnings between £153 and £805 per week for the 2014/15 tax year. Earnings over £805 per week are liable to a 2% contribution.

Secondary class 1 NICs are paid at 13.8% of earnings over £153 per week. Rates are for the 2014/15 tax year and subject to change. However, you may be eligible to claim Employment Allowance up to £2000 per year which you can offset against your secondary class 1 NI contributions.

You can find a full list of rates here.

By:Jane Hailstone

Need Help?

 

Call our team on 0116 269 0999
Or arrange a call back

Call back
Chat with us