Your tax-free salary from April
The amount of tax-free income you can receive in the tax year starting 6 April 2013 will be £9,440. This is the standard personal allowance for someone born on or after 6 April 1948. Those aged 65 or more on 6 April 2013 have slightly higher personal allowances of £10,500 or £10,660, which won’t go up in future years until the standard allowance has caught up.
Assuming you are under 65, you can earn £181.54 per week tax-free in 2013/14, but you will pay NIC on wages over £149 per week (£7,755 per year). Employers will pay NIC on wages of £148 or more per week. If you run your own company, you need to consider the NIC costs for both you and the company when deciding how much you can take out as salary.
If you pay yourself the full personal allowance of £9,440 as salary from 6 April 2013, you’ll have a personal NIC liability of £202.20 (12% x (9,440 – 7,755)) for the year. Your company will also pay £240.12 (13.8% x (9,440 – 7,700)) in NIC. However, the salary and NIC cost is fully tax deductible for the company.
A salary of £7,695 per year (about £147.98 per week) will avoid both employee’s and employer’s NIC. But you will get a credit for state retirement pension purposes if your salary lies in the range £109 to £149 per week. Unfortunately, under RTI (which applies from 6 April 2013), payments of salary in that range will have to be reported to HMRC, so there is no administration saving on paying a low salary.
If you want to discuss how to take profits out of your company in the most tax-efficient way, we will be happy to help.