Have I got this right?
I have a pension which makes me a 40% tax payer. I also have a one-man company. I am 52. To get a full State pension I could pay Volutary NICs of £6.85pw (£356pa). Alternatively, I could pay myself a salary of, say, £4000pa from my company: £4000 falls between the NIC Lower Eearnings Limit and the NIC Earnings Threshold so Employer's and Employee's NICs are payable at 0% - i.e. no NICs are payable BUT I would be deemed to have paid NICs and thus the year would be a qualifying one for State pension purposes, and I would not need to pay the £356 Voluntary NIC. (AM I CORRECT SO FAR???)
40% income tax on £4000 salary (£1600) would be payable but the £356 Voluntary NICs would be saved making the effective tax £1600-£356 (£1244). £1244 is 31% of £4000, so I'd pay an effective tax rate of 31% on the £4000 salary. (YES?) (And would the IR chip in something to my personal Stakeholder Pension?)
The company will have profits under £10K so no Corporation Tax will be payable. If I took £4000 as a dividend I think the tax rate is 32.5%?
So taking the £4000 as salary or dividends makes little difference tax-wise. (Or would there be a deemed tax credit of 10% with the dividend which would make the actual tax on the dividend 22.5%???)
I've been told that the Revenue take a dim view if you pay yourself no salary and take money out only as dividends (is this true?): the above approach would seem to enable me to take some salary at about the same tax rate as a dividend.
OR AM I COMPLETELY UP A GUM TREE!
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