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National Insurance Contributions (NIC) Increase : Minimise the impact on your earnings.

By Colin Davison, Cranleys Chartered Accountants
Copyright 2003

On 6th April 2003, National Insurance Contributions (NICs) increased for both employees and employers. If you are starting-up in business, you cannot avoid to keep upto date with the NIC changes that employers need to be aware of - it affects your take home pay (and is somewhat avoidable) as well as your employees (who can do very little to avoid this).

Employers will pay NICs of 12.8% instead of 11.8%. Employees will pay 11% (previously 10%) on earnings up to the upper earnings limit (UEL - 30,940 p/a for 2003/04), and 1% on any excess.

There are, however a number of ways businesses can reduce the impact on themselves and their employees. For example, for many small and medium sized businesses paying dividends is often far more tax-efficient than paying large salaries and/or bonuses as NICs are not charged on dividends, however the interaction (or formulation of an income mix) on the affect of corporation tax and income tax should also be considered.

Where a company occupies property owned by its owner-managers, consider paying a market rent, as NICs are not charged on rent. Property in this situation may qualify for business asset taper relief when sold.

These are only examples of the ways in which an accountant can help you with your NIC and indeed payroll and tax planning issues. More often than not tax advice can pay for itself and more. The time to consider reducing your tax bill for the forthcoming tax year is now - next March is too late. The sooner you speak to us the better.

Payroll services are also frequently something that companies do themselves fearing the costs of outsourcing - but again they can often pay for themselves in saved admin and far easier compliance. Keeping up-to-date with employment law, and constantly changing tax legislation mean that companies can frequently be forced to devote someone part or full-time to managing the payroll. Even a full-time employee devoted to payroll may not be a cost-effective solution.

Asking for a payroll quote will cost you nothing, and the quote could well be less than you thought. Why not talk to us about saving you money?


Colin Davison, Cranleys Chartered Accountants
Copyright 2003

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page created : 03-July-2003