Rishi Sunak announced yesterday (23/03/2022) that the Class 1 Primary and Secondary National Insurance threshold will rise from £9,880 to £12,570 in July.
Sunak described this tax cut as the “largest single personal tax cut in decades” and a “tax cut that rewards work” and will cut NICs for 70% of people who pay National Insurance, even after the planned tax increase through the Health and Social Care levy which will see employers and employees NICs increase by 1.25%.
Martin Lewis, the well-known money-saving expert, stated that if your salary is under £35,000, these measures will mean that you are saving money on NICs. If you earn over £35,000, the 1.25% increase from the Health and Social Care levy will outweigh the initial saving caused by the rise in the National Insurance threshold.
How this affects limited company owners
For limited company owners/directors, this is good news. Normally, but not all, limited company owners/directors get paid a low salary to remain under the Income Tax Personal Allowance threshold so to not pay any income tax on what they earn. This threshold is currently £12,570.
The rest of what they need is paid through dividends and National insurance tax thresholds and then pay the rest of what they need in dividends, which comes with its own £2,000 threshold and lower tax than the basic, higher, and additional rate tax bands.
When the National Insurance threshold was £9,880, limited company owners would either have to go above this threshold to take advantage of the Income Tax Personal Allowance and pay NICs or remain under the National Insurance threshold but lose out some of their Income Tax Personal Allowance.
Now that the 2 thresholds have been brought in line with one another, they can both be fully taken advantage of, without having to either pay increased NICs or Income Tax,
If you’re running a business and are not yet a limited company but want to become more tax-efficient we can help. We have a range of company formation bundles to suit all types of businesses here.