Originally written by Emma Twynholm on Small Business
It is easy to forget that even if you are a director of your business, you are considered an employee as well. Directors, just as the staff they employ, could be subject to any of the taxes mentioned in this article.
However, as a director it is often possible to structure your income from the business so that you don’t pay PAYE or National Insurance contributions (NIC) on salary and instead pay tax on dividends, which starts at a more favourable tax rate of 7.5 per cent compared to 20 per cent for salary.
For the people you employ you would need to be aware of the following taxes that will potentially apply.
National Insurance
The main tax that you need to be aware of when employing someone is National Insurance. Businesses are required to pay Class 1 employer’s NIC on any employee’s earnings over £737 a month. Employer’s NIC is charged at a rate of 13.8 per cent. If the staff member is under 21, the business pays no Class 1 NIC on earnings below £4,189 a month and 13.8 per cent above this threshold.
National Insurance is extended to Class 1A and Class 1B. Class 1A