Enterprise Nation

PAYE stands for Pay As You Earn and NI stands for National Insurance. It’s a good idea to be aware of both acronyms when you go self-employed. Enterprise Nation in-house accountant, Alan Young, explains.

PAYE is a four letter word

When you become self employed, you’ll be required to pay Class 2 National Insurance, which can be paid weekly, monthly or quarterly. This is paid at the rate of £2.30 per week, and covers the taxpayer for profits of up to £5,435. Anything over and above this is subject to Class 4 National Insurance, at 8% (up to a maximum profit of £40,040 per year, after which the rate drops to 1%).

For limited companies, it is possible to pay yourself a salary of approximately £105 per week, without paying PAYE or NI, with the majority of remuneration being taken by way of a dividend, which, as investment income, is not subject to National Insurance.

However, to ensure a minimum contribution is paid, thereby ensuring future pension and other benefits, you might want to pay a slightly larger salary to each director - usually around £5,500 - £6,000 per annum.

• Alan Young, 1st Addition
• HMRC Rates & Allowances Page - NIC