Outsourcing - Payroll Calculations

Setting the Salary Level

Should you choose to become a director of a limited company, you have the choice of paying yourself a combination of salary and dividends. This can provide a substantial saving for freelancers who would normally be liable for higher rate tax.

Salary should be kept above the minimum wage level so it does not attract attention from HMRC.

Freelance World can advise on the most appropriate salary level based upon your own unique circumstances.

PAYE

PAYE is HMRC’s method of collecting income tax from the wages of employees as they earn it.

An employer has an obligation to deduct income tax and National Insurance Contributions (NICs) from its employee’s pay. PAYE should be deducted from any gross salaries paid from the company and remitted to HMRC including salary and wages, overtime, expense allowances, bonuses, commission, tips, statutory sick / holiday / maternity / paternity / adoption pay, lump sum payments and the cash value of any shares given to an employee.

The level of PAYE deducted from the salary depends on the individual’s circumstances and is determined by a coding notice which an employer receives on the employee’s behalf, after submission of a p45 or p46.

An employer must keep a record of all salary payments made to employees (with details of the deductions from the payments).

HMRC has a series of helplines to assist with the area of PAYE:-

New Employer helpline - 0845 6070 143
Employer helpline - 0845 7143 143

Further guides on how to calculate the correct deductions can be found at www.hmrc.gov.uk

National Insurance Contributions (NIC)

NIC will also be due on your gross salary. The current standard level of NIC deducted is 11%.

The company through which you are employed will also be liable to pay employers NIC at a rate of 12.8%. Again, any dividends you receive will not attract NIC.

As a director of your company, the rules for deduction of NIC are slightly different from those of an employee in that the deductions will not begin until your gross salary reaches the lower earnings limit. At present this is £5,225.

If you are working overseas, you can apply for an E101 certificate which will allow you to continue paying UK NIC and exempt you from paying NIC in the foreign country which you are working in, provided that the company has a reciprocal agreement with the UK. Our advisors can assist you further with the completion of these forms.

As foreign countries normally treat your day rate as the basis for any tax/NIC liability, an E101 will lead to a large tax saving for most contractors.

Student Loans

Should you be in a position where you have student loan deductions from your salary, you will need to arrange for the payment of the deduction to HMRC.

At present, the threshold for student loan deductions is set at £15,000, therefore should you choose to pay a level of salary lower than this through your company you are provided with an opportunity to delay or reduce the deductions you would normally be required to pay from your gross salary.

Foreign Tax Deductions

As Freelance World caters for freelancers working on land and at sea throughout the world, we are required to liaise with tax authorities in many countries. As such, we are in the privileged position of being able to provide you with a service which will not only deal with your UK liabilities but also in many foreign countries as well.

We are in regular contact with local tax offices and advisors across the globe, keeping us up to date with required changes in legislation and tax rates.

Outsourcing - Payroll Calculations

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