Changes To Directors’ Salaries

April 25, 2020

The advice regarding changes to directors’ salaries for 20/21 has altered, please read the information below direct from our team of accountants.

When it comes to tax-efficient salary levels for 20/21 there are now three national insurance thresholds you need to be aware of:

  • Lower Earnings Limit – as long as you pay a salary above this you are protecting your entitlement to future state pension and benefits, without paying any national insurance. For 20/21 this is £520 per month, £6,240 for the year
  • Primary Threshold – if you earn above this you personally have to start paying national insurance – for 20/21 this is £792 per month, £9,500 for the year
  • Secondary Threshold – if you earn above this your business has to start paying national insurance – for 20/21 this is £732 per month, £8,788 for the year

A major change for the 20/21 tax year is that the Secondary Threshold is lower than the Primary Threshold – this means that the optimum level for the purposes of this article is to go up to the Secondary Threshold but not any higher.

Previously we may have advised you to pay up to the primary threshold which would not have resulted in any NIC being payable.  If we advise the same this year, you will have an NI liability.  To put it in context, some want to see a physical NI payment for their NIC history.  For 2021 this would be from £793 per month.  The monthly NI cost of this would be Ee’s – £0.12 and Er’s – £8.54.  Because directors tend to be on the cumulative basis, this is likely to hit later in the tax year, once the cumulative thresholds have been exhausted.

For more information or any advice regarding this matter please click here to get in touch with us.

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