NIC if no salary?

dimjim · Postby **dimjim** » Mon Apr 18, 2005 4:20 am

Hi,

I've just finished my first year as a limited company, and have only paid myself by means of dividends, and I do not have PAYE setup.

I believe that you do not have to pay NIC's on income from dividends, but as this has been my only source of income does this mean I do not have to pay any NIC's for the past year. This doesn't sound right to me and I have no problems in paying contributions, I'm just not sure how much or even how.

Any feedback will be greatly appreciated.

Cheers,
James.

kirstie.williamson@a · Postby **kirstie.williamson@a** » Mon Apr 18, 2005 4:58 am

I assume your company has made sufficient taxable profits to cover the dividends which you have paid yourself ? Unlike salary dividends are not deductible for corporate tax purposes and can only be paid from taxable profits.

If you are not paying any salary to yourself then you are potentially wasting your annual personal allowance ( assuming you don't have any other taxable income).
Dividends come with a 10% tax credit which is non-refundable. So if all your income is dividends then it will all effectively be taxed and your personal allowance is wasted.

This is why you will often see recommended on this site that you should pay yourself a salary up to the personal allowance and dividends over and above.

paying sufficient salary will also preserve your right to a state pension and other state benefits. It is possible to pay voluntary class 3 national insurance contributions if you wish ( about Â£7 per week) but the salary route is to be recommended.

How many shareholders does your company have ? have you followed the correct procedures for voting for dividends, preparing vouchers, minutes etc ?

getting set up for PAYE is relatively straightforward ( and a good time is now at the start of a new tax year !)

KW
KW

dimjim · Postby **dimjim** » Mon Apr 18, 2005 5:25 am

Thanks for your rapid response!

I opted not to set up PAYE and pay salary mainly because I was too busy and disorganised, and I wanted to go the simplest route for the first year.

I did work for someone long enough to use almost exactly my personal allowance during this period...a bit of luck it would now seem

So I think I can forget about last years NIC's and setup PAYE for this year.

I don't seem to have followed the correct procedures for drawing my dividends, hopefully I can add these now in retrospect as there is only me and the missus in the company.

Very many thanks for helping me.