Hi

I am going from a Sole Trader to a Limited company, currently paying the ?.30 per week National Insurance class 2, and the class 4 National Insurance 8% of profits on self assessment. I read on HM Customs website that if I notify them they finish me for class 2 National Insurance on the Saturday after finishing as self employed and also read that you only pay the 8% National insurance as a self employed.

What I am having difficult in finding is details of what National Insurance you pay a Director of a Limited company, did see somewhere that it is class 1 which both director pay and the company but from what I understand most companies have the director being paid ?05 a week and the rest in dividends which I believe there is no National Insurance on.

Does anyone know if there is a voluntary National Insurance that you can pay monthly by direct debit as I want to make sure I have paid enough to have enough national insurance contributions paid by the time I need the state pension.

Thanks

Alison
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You don't need to pay voluntary contributions. There are two limits for NIC contributions. There's a "lower earnings limit" of ?0 per week. Below that and there's no effect on NIC at all. The next level is called the "primary threshold" at ?05 per week. Above that, up to the upper earning limit, the employee pays 11% and the company 12.8%.

In between, you are in never never land. You don't pay anything, but you get credit for contributions. The contributions, iirc, count for state second pension as if you earned ?2k a year or something like that.

So provided you do take a salary in that band, then you are fully covered for all NIC contributions and benefits.

Don't ask me why. I didn't invent the system. In fact, I think that it's evidence of extra terrestrial life, as nobody on the same planet as me could have come up with it! :p
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First thing to bear in mind is that directors are employees of the company and so if you asre going to pay the directors above the thresholds then you need to register the company for paye.

You would then deduct tax and national insurance as any other employee.
Rates as stated by David.

There is a small anomaly regarding directors tax and national insurance in that although at the same rates as any other employee the amount paid is calculated on an annual basis to avoid directors paying themselves everything in one month and only paying 1% NI when the amount goes over the upper primary threshold.

After you register for paye HMRC will send you a CD-Rom which has automated calculators to help. Also you may consider buying a piece of kit that also does the calculation for you and produces payslips which the CD-Rom doesn't.
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What David is also describing is the "basic salary" referred to when we say taking a basic salary and the rest in dividends for tax efficiency.
If you are paying over the LEL you have to complete a P35 and thus qualify for online filing incentives too - we must be close to the last year of this now, anyone remember if its this year or next?
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on line filing incentives - last one coming up:

file online for 2008-09 (Return due by 19 May 2009) and get ? 75
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Alison

Am I right in thinking you may be a bookkeeper? May have got this wrong ... anyway I should really be on commission here as I keep plugging these but how about attending the free hmrc course for some back ground on e.g. payroll, accounts etc.

Know I am not suggesting that this then qualifies you to deliver such services but it would help as background when dealing with your own and clients books. Here is what is on offer:

http://www.hmrc.gov.uk/bst/work.htm

Some of them are just a couple of hours up to one day - time well spent IMO
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[quote=elainec100;630550]Alison

Am I right in thinking you may be a bookkeeper?

HI Elaine

Yes I am a bookkeeper. I have booked for the Limited Company course, unfortunately the date is after we have the Limited Company set up but from reading the course description it looks like they explain companies house reporting and tax side of things so should still be useful.

Payroll is not a problem have used Sage Payroll for many years and will be opening a payroll bureau once I get the change to take the ICB payroll level 3, it is just that the majority of my clients are sole traders and partnerships, and the few that are Limited Companies the accountants have told me what wage to process for the Director without telling me the reason for that amount so I have nothing to compare with and HM Customs and Website all I could find was that it is just class 1 and thought I must have been missing something as all directors I know off only have wages of ?00 or ?05 a week so was unsure how they were getting enough National Insurance Contributions for state pension.

Thanks

Alison
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