We have been asked a few times now why, if you are a director of your own company, we have set the salary levels this year at £602.08 per month, which equates to £7,225 for the year, rather than at the personal allowance threshold of £7,475 (£622.92 per month).
This is because this tax year, the employee’s NIC threshold (£7,225), the employer’s NIC threshold (£7,072) and the income tax threshold (£7,475) have all diverged. We have therefore opted to ensure that your director’s salary level is set so as to ensure the lowest level of deductions whilst maximising future benefits such as the basic state pension.
Given that employer’s NICs start to be payable £153 lower than the employee’s NIC threshold of £7,225, in month 12 of your payroll (that is in March 2012), there will be approximately £21.11 of employer’s NIC to pay at 13.8%.
The difference of £250 between the tax personal allowance of £7,475 and the employee’s threshold of £7,225 will be used to offset any possible tax on other income such as P11D benefits (for example private accountancy costs invoiced to your company), bank interest received or any other taxable income.