After two years of no changes in the tax free personal allowance, the start of 2011/12 (6 April 2011) brings with it a tardy increase in the allowance from £6475 to £7475.
This has a knock-on effect of the primary threshold rates for National Insurance (NIC). As you are no doubt aware the payment of a salary above the Lower Earnings Limit entitles an individual to means-tested benefits, including the basic State Pension. However, no NIC is actually payable until the salary reaches the Primary Threshold (£476 per month for 2010/11). As of 6 April 2011, a salary of £589 per month will secure these important entitlements, but without any employer or employee NIC being due. Therefore you can increase your monthly salary payments from £476 to £589 without incurring any tax or NIC.
A company can deduct these salaries and other allowable expenses from turnover, pay less corporation tax, and then distribute the balance as dividends, on which no NIC is due.
If you would like any further information on the above or if you would like advice on the financial implications of the forthcoming year for your own business, then please feel free to contact the team on 01733 371180.