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Limited Companies and National Insurance contributions

Posted 10 Jul 17

Increasingly more people are operating under their Limited Companies when contracting services (work) to different organisations.

It should be noted that Limited Companies are a separate entity from an individual, this therefore means that the company has a legal standing and has its own assets and liabilities.

Directors of companies have the duty of care of managing the company and if they are shareholders, they are eligible to company profits and gains if the company is sold.

However, payments received through business trading belong to the company and not to the individuals. Any remuneration extracted from the company must be done using appropriate methods and not as when one wishes.

This recognised misconception is seemingly manifested in new company owners, especially those familiar with sole trader operations.

Remuneration can be extracted from the company by using Dividends or Pay As You Earn (PAYE) schemes. Dividends are payments to company shareholders from company profits. They are not payable if the company has made no profit.

Dividend payments are commonly done by large public limited companies, but private companies can also make dividend payments.

Dividends are subject to corporation tax which is payable by the company.

With the PAYE scheme, a salary that is a gross amount before tax is paid to an individual (Director/Shareholders). The frequency of payment (weekly, monthly etc.) and amount of payment is at the discretion of the individual (i.e. if director is also shareholder).

The tax and National Insurance contributions are dependent on a tax code and are deducted from the salary.

There are significant benefits of paying National Insurance contributions, such as free National Health Service (NHS) treatment, state pension and maternity pay.

Tawanda Accountants can efficiently offer the competitively priced services including setting up the PAYE system with the HMRC, payroll management - filing weekly/monthly payroll, producing payslips, administering of maternity pay and calculation of dividends if you choose to take the dividend route (it is possible to do both the PAYE and Dividends scheme).

Our services will also be beneficial in overcoming some of the odds from the norm, like Director’s NIC calculations are different from a normal employee and other miscellaneous deductions from the salary, like pensions, student loans as well as administering NI payments by the company when employee is paid using the PAYE system.