Sunday, 25 May 2008

What Do We Do About PAYE / NI, Once We Are Self Employed?

From commencement as a self employed person, you will be required to pay Class 2 National Insurance, which can be paid weekly, monthly or quarterly.

This is paid at the rate of £2.30 per week, and covers the taxpayer for profits of up to £5,435. Anything over and above this is subject to Class 4 National Insurance, at 8% (up to a maximum profit of £40,040 per year, after which the rate drops to 1%).
For limited companies, it is possible to pay yourself a salary of approximately £105 per week, without paying PAYE or NI, with the majority of remuneration being taken by way of a dividend, which, as investment income, is not subject to National Insurance.

However, to ensure a minimum contribution is paid, thereby ensuring future pension and other benefits, we recommend the payment of a slightly larger salary to each director (usually around £5,500 - £6,000 per annum).

In order to minimise work (and therefore cost) recent changes in NI legislation mean that this salary can now be paid annually, as long as the recipients are also directors.

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