Many director shareholders take a minimum salary and any balance of remuneration as dividends. This tends to reduce National Insurance Contributions (NICs), and in some case income tax. The planning strategy is to pay a salary at a level that qualifies the director for State benefits, including the State Pension, but does not involve payment of any NICs. For 2017/18, the NIC rate is set at 0% for annual earnings in the range of £5,876 to £8,164 inclusive. Earnings in this band range qualify for NIC credit for State benefit purposes. At £112.99 per week (£5,875 p.a.) no NI credit is obtained for State benefit purposes. At £157.01 plus per week (£8,165 p.a.) NI contributions start to be paid at the rate of 12%.Planning notesBased on the above considerations it will generally benefit director shareholders of small companies to pay themselves an annual salary of £8,164 for 2017-18 – thereby securing credits for State benefits but avoiding any NIC charge – and take any balance of their annual remuneration package as dividends. In certain circumstances, taking a lower salary, but staying within the £5,876 to £8,164 band, would be equally effective. Fixing an appropriate salary level should be decided by considering all the factors that influence liability for a particular taxpayer.Other points that directors should be aware:A director’s liability to NI is worked out based on their annual (or pro-rata annual) earnings. This differs from regular employees whose liability is calculated based on their actual pay period usually weekly or monthly. Payments on account of a director’s NICs can be made in a similar way as for employees however an annual adjustment must be made at the end of the tax year.Directors, who are first appointed during a tax year, are only entitled to a pro rata annual earnings band which depends on the actual date appointed and the amount of time remaining in the tax year. Care needs to be taken in these circumstances not to incur an unexpected liability to pay NIC. Directors resigning during the year still have the full annual earnings band quoted above, and so care is needed to ensure that earnings for the whole tax year are within the range of £5,876 to £8,164.Directors considering their planning options for the first time are advised to take professional advice as there are a number of considerations to take into account when setting the most tax/NI efficient salary. We, of course, would be delighted to help.