I have just received a call from a client who runs a small limited company and he has asked me to set-up a payroll with HMRC for him.
In the past he has insisted on paying himself £ 450 per month, although it's not the most tax efficient amount. This is due to the fact that his father in law is a CIMA Accountant. As this amount was below the required level he said he did not want an official payroll set-up.
For the 2012-13 year he has decided to take my advice and pay himself £624 per month. What I was wondering is does he now have to set-up a payroll with HMRC as he is still under the Tax and NI thresholds or is it just best practice to do so.
Assuming the intention to pay a director in excess of £5564 for the year it is compulsory to operate a payroll and report P35/P14. From 2013/14 RTI would require real-time filing of every wages payment.
At the moment PAYE is often annualised and salary payments are made irregularly of various amounts without deductions throughout the year.
Any idea how that fits in with the post RTI landscape?
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
At the moment PAYE is often annualised and salary payments are made irregularly of various amounts without deductions throughout the year.
Any idea how that fits in with the post RTI landscape?
kind regards,
Shaun.
Informally a lot of companies do that, but I don't think they've ever been supposed to do it, and I suspect that part of HMRC's agenda with RTI is to eliminate it and formalise payments to directors as and when they happen.
the issue with the diretors that I know is that they don't know at the start of the year how much money the will have for salary until the end of the year.
Paying themselves monthly they will end up paying tax and NI but may end up at the year end in a position that they should not have paid anything and will have to reclaim it whereas at the moment they pay throughout the year and only start paying PAYE when they breach the threshold.
the big question is will HMRC be better or worse off they have to process a lot of repayments to be refunded with interest.
interesting times!
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
HMRC would probably argue that once salary has been paid it has been paid. There is no such thing as a "gross pay refund", they would say. There might be tax refunds if the director took salary at the start of the year but not the end, but the way NI is calculated for directors there should never be an NI refund unless the director chooses the "alternative arrangement" in CA44.
I agree, it is going to be very interesting to see what happens in many areas, not just directors pay, once RTI really gets going. Employers are going to have to be much more on the ball about getting payments right first time. Agencies tell me that sometimes they discover that someone has left months later, and that the employer has simply been ignoring the payslips and payments for that employee.
sorry, think you misunderstood what I meant. I was talking only about repayment by HMRC of overpayment of PAYE.
I can already see exactly what will happen.
Directors will use the loan account throughout the year and then pay a single (minimal) salary payment and dividend at the end of the period to clear it.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Informally a lot of companies do that, but I don't think they've ever been supposed to do it, and I suspect that part of HMRC's agenda with RTI is to eliminate it and formalise payments to directors as and when they happen.
Yes Tom. If RTI was only to support Universal Credit, then the government could (save us all a lot of trouble and) apply it only to U.C. recipients. I agree the agenda is to regularise and monitor every wage and salary at every frequency.
Informally a lot of companies do that, but I don't think they've ever been supposed to do it, and I suspect that part of HMRC's agenda with RTI is to eliminate it and formalise payments to directors as and when they happen.
Yes Tom. If RTI was only to support Universal Credit, then the government could (save us all a lot of trouble and) apply it only to U.C. recipients. I agree the agenda is to regularise and monitor every wage and salary at every frequency.
Regards,
Tim
Exactly, HMRC wants a lot more control and visibility. I get the impression that they believe that there is widespread scamming of the system by smaller employers, because it is so easy to make small P32 payments at the moment mid-year to ease cashflow and the chance of this being picked up is slight. And they want to stop the whole informality that surrounds director's remuneration.
Anecdotally a lot of Ltd's get into trouble and go bust with DLA in Debit. It seems to me that if directors are effectively encouraged to run DLA payments through the year to avoid reporting PAYE that problem will get worse rather than better. Law of Unintended Consequences.
