How do contractors benefit?
Importantly, you will only benefit from this Government measure if you pay yourself a high enough salary on which to incur and claim back Employers’ NICs and, as your salary increases, your liability for income tax, and Employees’ NICs rises, so there are several things to bear in mind when setting the ideal salary level.
The personal allowance (the amount you can earn before paying any income tax at all) is £11,500 from 6th April 2017, and you don’t pay any Employees’ NICs at all if your salary is £8,164 or less during the 2017/18 tax year (this is known as the ‘Primary Threshold’).
Employers’ National Insurance is payable on all salaries paid above the ‘Secondary Threshold’ of £8,164 per year, at a rate of 13.8%.
£11,500 salary – How the Employment Allowance works in practice
If your company is eligible, is it worth taking a £11,500 salary during the 2017/18 tax year, compared to taking £8,164?