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In this article we will go through how national insurance works in the UK and how you can receive income totally tax free! 

Directors of limited companies are classed as employees and therefore must pay national insurance in the UK (In the Class 1 National insurance thresholds bracket). If your salary as a director does not exceed the Primary Threshold (£719/month), then you don’t have to pay any national insurance contributions.

Furthermore, as this is within the personal allowance , you won’t pay any tax whatsoever below the Primary Threshold! You will pay for national insurance on your earnings above the Primary Threshold (typically 12%).

Employers have to pay towards national insurance contributions for their employees, when they start earning a wage above the Primary Threshold (Secondary Threshold for employers). The rate is set at 13.8% and you may need to do this as a director of your own LTD company.

 

Below you will find tables with the rates of national insurance depending on the category and threshold.

 

Thresholds

LEL= Lower earnings limit < £512/month

PT = Primary threshold £512 – £719/month

ST = Secondary Threshold > £719 – £4,167/month

UEL = Upper Earnings Limit > £4,167/month

 

Categories

A – All employees apart from those in the remaining categories

B – Married and widowed women can pay a reduced national insurance

C – Employees that are over the state pension age

H – An apprentice under 25

J – An employee who can defer national insurance due to paying it in another job

M – Employees under 21

Z – The same as category J but for employees under 21

 

Employee Rates (how much employers deduct from employees’ pay)

Category LEL-PT

Rate %

ST-UEL

Rate %

Above UEL

Rate %

A 0 12 2
B 0 5.85 2
C n/a n/a n/a
H 0 12 2
J 0 2 2
M 0 12 2
Z 0 2 2

 

Employer rates (how much employers pay towards employee NI)

Category LEL-PT

Rate %

ST-UEL

Rate %

Above UEL

Rate %

A 0 13.8 13.8
B 0 13.8 13.8
C 0 13.8 13.8
H 0 0 13.8
J 0 13.8 13.8
M 0 0 13.8
Z 0 0 13.8

Also worth mentioning is the Lower Earnings limit, which enables you to receive insurance as well as the state pension, without paying for NI contributions. This limit is currently set at £512 per month. You will receive the minimum state pension after 10 qualifying years. Qualifying years are the years you have been working whilst contributing to NI.

To summarize, as a director you can pay yourself a salary of up to £719/month (£8,632/annum) without having to pay any national insurance or income tax in the UK. You can still pay yourself more than this without paying income tax (up to £12,500/annum)

If you have any questions related to national insurance in the UK or you’re looking to register a LTD there, then please don’t hesitate to contact us or arrange a free consultation with one of our experts. We will be happy to assist you and answer any questions!

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Glossary

Word/Term Definition/Description
Exempt Free from or not subject to e.g. these products are VAT exempt.
Fishery An entity that raises or harvests fish, in this case to sell commercially.
HMRC Her Majesty’s Revenue and Customs – Government body responsible for the collection of taxes (including VAT) and NI.
Raw material Basic, starting material that a product is made from e.g. iron ore is a raw material of steel.
Threshold A benchmark or limit beyond or below which a different state of affairs exists. E.g. Going beyond the limit of the distance selling threshold, requires registration for VAT.
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