New Tax Free Allowance.

The standard personal allowance, (amount of tax-free income) for 2013/14 will be £9,440.

We had been expecting a smaller increase to £9,205.

The new higher allowance allows an individual to earn £181.54 per week, (about £787 per month) tax free. But the NIC thresholds will not increase by as much, so an employee starts to pay NICs on income way below the tax-free threshold.

In 2013/14 the class 1 primary NI earnings threshold for employees will be £149 per week, (£7755 per year). Employers will pay class 1 NI on wages of £148 or more per week, (£7700 per year). You need to consider the NI costs for both you and your company when deciding how much you can extract from your own company as salary.

If you pay yourself the full personal allowance of £9,440 as salary from 6 April 2013, you will have personal NIC of £202.20 (12% x (9440-7755)) for the year. Your company will also pay £240.12 (13.8% x (9440-7700)) in class 1 NICs. However, the salary and NIC cost is fully tax allowable for the company.

A salary of £7,695 per year, (about £147.98 per week) will avoid both employees and employers NICs.

But you will get an NI credit for state retirement pension purposes if your salary lies in the range £109 to £149 per week. Unfortunately under RTI (see above), payments of salary in that range will have to be reported to HMRC, so there is no admin saving on paying a low salary.

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