Director's Salary through own LTD Company

[CrazyMoose]

Hello experts!

Since we are almost at the end of the tax year, I need to start thinking about using up my income allowance for 09/10. For arguments sake, I always assume an annual income of around £40K a year to avoid paying any extra tax on dividends etc.

In terms of my salary, can someone please confirm that, if my tax code is 647L, I can pay myself £6475 for the year and:

1. Still pay enough to contribute towards my state pension entitlement
2. Not pay any income tax on this figure

As a bit of background, I haven't paid myself anything since the 6th April 2009 so I just need to withdraw the salary, claim my expenses, and take out the rests in divis up to the threshold.

I am the sole Director of my limited company.

Thanks in advance
CM

[Dave Marples]

Hi CM

In the current tax year (2009/10) the tax free personal allowance is £6,475 and this translates to a tax code of 647L.

You are quite correct that if the salary you are paid in the tax year is lower than this figure there will be no tax to deduct from the payment.

To qualify for the state pension entitlement you need to earn more than the Lower Earnings Limit (LEL) which in 2009/10 stands at £4,940.

However, if your earnings exceed the NIC Primary Threshold (PT), £5,715 in 2009/10, you will need to deduct Employees NIC from the salary, there will also be employers NIC to pay.

You therefore need to make the decision of whether to pay £6,475 in salary and incur an NIC charge or paying between £4,940 - £5,715 to prevent an NIC charge but also fail to utilise all of your tax free personal allowance.

Cheers

David