The 123 Guides

Salary

Business Structure Review

The 123 Way

What is included as standard for a fixed fee of £65.00 + vat per month:

Full Contracting health check - is your business performing as best it could - we'll ensure it is.

If you're new to freelance contracting, we'll ensure you start trading in the right way.

Then you can sit back and relax, your ongoing HMRC & Companies House compliance will be taken care of.

The 123 Way - simple & stress-free.

Setting your salary level is completely up-to you as a director. You have three main options to choose from:

1 The NIC free allowance
2 The National Minimum Wage
3 A commercial salary rate

Each has different implications explained below.

1 The NIC free allowance

The NIC free allowance, currently set at £7,488 would mean you pay no income tax or national insurance. This is obviously very tax efficient, but if you make large personal pension contributions you would not be able to do this.

2 The National Minimum Wage

The NMW is set at £6.08 per hour (from 1st October 2011), so based on a typical 37.5 hour week, this would equate to an annual salary of £11,856. Paying an extra £4,368 as salary above the NIC free allowance would mean that you will pay income tax of £750, employees NIC of £512, and employers NIC of £603 makes an extra £1,865 payable to HMRC.

By paying a salary set at the NMW you would receive Corporation tax relief of £994, as salary is a business expense, the net extra taxes payable would be £871 (£750+£512+£603-£994).

HMRC have stated that although the NMW applies to all employees, they will not seek to enforce it against directors of companies. Therefore as long as you do not have a written contract of employment with your company there appears to be a way of setting your salary at £7,488 below the NIC threshold.

3 A commercial salary rate

The third option would be to pay yourself a commercial salary - i.e. the rate you would get for doing the job you do if you were working for someone else. Depending on the salary level this would result in a higher tax and NIC liability.

Running a Limited Company

Director's Responsibilities

Company Bank Account

Payroll

Salary

Dividends

Limited Company Accounts

Corporation Tax

VAT - The Basics

VAT - The Choices

123 Income Illustrator

The 123 Income Illustrator shows you what you can expect to take home from a given contract.

It also compares the differences between freelance contracting through your own Limited Company, through an Umbrella Company, as a Sole Trader or if you were to return to full time employment.

The123 Income Illustrator

Invoicing

Expenses

Expenses - Detailed Guide P1

Expenses - Detailed Guide P2

IR35

IR35 - Detailed Guide P1

IR35 - Detailed Guide P2

Company Secretarial

123 Referral

We run a simple referral programme where for every client you refer to The 123 Way we will give you £123.00

For more information check out the link below:

123 Referral

Salary - page 2

Personal Tax

Importance of Information

Important Dates

Being a Sole Trader

Calculators

FAQs

The 123 Blog

To keep up-to-date with tax legislation and 123 news check out the 123 Blog.

The 123 Blog

Disclaimer:
This information is for general information only. No responsibility is taken for any action taken or refrained from in consequence of its contents. Always seek professional advice before acting.

About us

Running a Limited Company

Contractor Expenses

Freelance

Freelance Case Study

Limited Company Accounts

Being a Sole Trader

Tax Return

Business Structure Review

Business Banking

Umbrella vs Limited Company

VAT Registration