A note on national insurance and the dividend tax

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The main national insurance rates for small business for the current tax year (up to 5 April 2017) are summarised as follows:

A sole trader pays 9% national insurance on profits above £8,060 (reducing to 2% on profits above £43,000)

Partners in any partnership, including limited liability partnerships (LLP) also 9% national insurance on profits above £8,060 (reducing to 2% on profits above £43,000)

Within a single person limited company an owner manager will often pay a salary which has no national insurance on first £8052 of salary.  If the company is limited by shares they will pay dividends to take out money above that amount.  Broadly, dividends attract an extra 7.5% tax over and above the tax associated with salaries.

However if the company cannot pay a dividend (e.g. a company limited by guarantee, a CIC, or a company with no accumulated profits) the further salary will be required instead of dividends.  This additional salary will attract 25.8%* on salary above £8,060, reducing to 15.8%* on salary above £43,000.

(*includes employers national insurance at 13.8%)


As with all of our tax tips and web pages this information is necessarily summarised and of a general nature.  If you would like detailed specific advice please contact us.

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