Being a Crunch client means you need not worry about complying with Real Time Information (RTI), whichever way you take a salary from your company.
When it comes to taking salary with Crunch, as a Director you have a two options:
- Take salary of up to the National Insurance threshold or,
- Take a higher salary, but this will require paying for Crunch Payroll (If you are interested in this service, please email email@example.com)
As a UK taxpayer you will have a personal allowance of £11,000. This means you can earn this much each year without paying tax.
There is also a National Insurance Contribution (NIC) threshold but this is set at a slightly lower level before you start incurring a charge.
Under current rules a director, being an ‘office holder’, is not subject to the National Minimum Wage Regulations unless there is a contract of employment in place. A very low salary can therefore be paid and legitimately avoid NIC. Furthermore, if your pay is above the NIC ‘Lower Earnings Limit’ (£5,824) but below the NIC ‘Primary Threshold’ (£8,060) you are treated as if you are paying NIC and retain your State Pension contribution record. Win win.
Why would I want to take a higher salary?
However, there are some disadvantages to taking a very low salary, such as:
- Reduced maternity benefits. Technically to be entitled you need to be “employed” and thus be compliant with the National Minimum Wage Regulations.
- Ensure you utilise the tax free personal allowance in full. You could miss out on the full allowance if paying at the Secondary NIC Threshold.
- Reduced cover under permanent health, critical illness, personal accident or similar policies for which benefits are calculated by reference to earnings.
- Issues with National Minimum Wage Regulations if you do want to have a Contract of Employment.
- Visa references may require a higher level of salary
What's the most tax efficient?
It really is for you to decide, we cannot recommend a salary. However, if you do want to pay yourself at the National Minimum Wage, this is going to be a salary at a rate of approximately £12,900 per annum (£6.70 x 52 x say 37 hours). Some Visa references may require a higher level of salary and this should be ascertained before you pay yourself as the net pay should tie up to the amounts shown on your bank statements.
What does Crunch Payroll include?
This service includes all the calculations, payslips and advice for all Directors and up to 10 employees. It will also cover payments to family members and other employees that previously may not have appeared on end of year PAYE returns (due to being paid at a level below the Lower Earnings Limit) but now must be disclosed under RTI. Also, with RTI we feel HMRC will be able to look closer and sooner at someone’s IR35 status now PAYE is reported monthly.
If you do have concerns over IR35, it’d be worth us taking a look with our IR35 Review, IR35 enhanced review, or (if you’re pressed for time) the Express IR35 Enhanced Review.