Tax Planning Ideas - Reducing the costs of National Insurance

One area that often gets over looked when discussing tax savings and planning ideas is National Insurance. As we know National Insurance Contributions are on the rise and I expect them to continue to increase over the next 3 tax years. NI can be a major cost for a business and thus I thought I would share some simple tax tips to potentially lower this cost for you and your associates.

Dividends
The most common suggestion I make is to ensure that a Director takes a low salary and increases the amounts he takes in dividends. This will ensure one pays the marginal National Insurance Contributions and the rest is only subject to corporation tax at 20% with no additional NIC liabile. One thing to bear in mind is that if you are changing salaries for existing directors ou must ensure you have meeting notes on file with shareholders agreement and potential a revised contract of the new arrangement.

Pension Contribution
Another planning point can be to entering employees into a salary sacrifice pension scheme. This enables payments into the scheme to made from the gross pay. You must ensure inwrirting that the employee has given up part of his salary in favour of the company making a contribution.

Self Employment
A company can consider engaging individuals on a self employed basis rather than an employed contract. This is simply a matter of drafting appropriate contracts and terms and conditions.  The benefit is obvious as one would not pay employees/ers NI. The most important thing here is getting the contract right as HMRC often investigate this scenario

Share Incentive Schemes
Similar to the benefits under a salary sacrifice arrangement, an employer can set up this share scheme giving employees and option to purchase shares out of their gross pay and thus would not attract NI. The downside of this is that a trust must be set up and the shares must be held for five years to avoid further tax implications.

These are four very good, basic tips to give you and your associates ideas to reduce any National Insurance Costs.

As you know I am working hard to build my own client base so if you know of anyone who needs tax compliance work or advice please pass them my details

Thanks for reading and feel free to comment


Mitch the Tax Man