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Post Info TOPIC: Directors NI confused


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Directors NI confused
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wondered if anyone could shed some light on this?

I am using Sage payroll 50 payroll 2011 and my Director had a query on his NI.

On month 1 of his salary (from another company) he paid low NI, this company no longer is exists, so have put all the details in the new company from his P45 and his Month 2 NI has shot right up, but now is coming back down again now we are in month 5.  I know there is a threshold, but i cant understand why he paid such a low amount in month 1? from the previous company.

Hope this makes sense :)

 



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Was he an employee of the other company or did he own it?

Directors tax and N.I. whilst calculated in the same way is somewhat different in that quite often payments are in relation to profits rather than a preset amount so at the start of the year they do not know how much N.I. they will owe at the end of the year.

A direcor may get £2000 in month 1 but £200 in month 2. As such it is quite normal for directors to pay little or no tax or N.I. until they have breached the thresholds as until that time they did not definitely know that they would.

Software often doesn't support the reality of directors pay and treats them as any other employee charging tax and N.I. that may in reality never actually be due.

All eye's are on RTI to see what sort of spanner that throws into the works in relation to directors pay.

For now, really directors pay should be considered on the cumulative basis simply ensuring that the correct tax and N.I. is paid for the year, not necessarily for the month.

kind regards,

Shaun.

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Shaun

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Hi Shamus

Thanks for coming back to me.

Yes he owned the other company and was set up as a Director on payroll.

Here is an example of NI figures no actual: -

Month 1 - £50.00
Month 2 - £1000.00
Month 3 - £1000.00
Month 4 - £1000.00
Month 5 - £800.00

I know month 6 it will reduce, but just didnt look right.

Was going to call HMRC but thought i would come here first.

I have explained that by the end of the year it would all balance out correctly (fingers crossed) :)

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Hi,

no need to bother HMRC with this (and no doubt you wouldn't be thanked for it by this director).

So long as everything balances out nicely by the year end everyone is happy. HMRC get what they are owed and the director doesn't have to reclaim for overpayment.

As I said in the previous post, it has to be appreciated that directors salaries are a little different but the end result must be exactly the same.

All in all I don't feel that there is anything that you need to worry about at the moment.

kind regards,

Shaun.

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Shaun

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It be worth looking at his payroll vs dividend (assuming he is a shareholder as well) strategy though. Is this his only company?

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Hi Phil,

I was thinking that when I saw how much NI was being paid out but didn't make anything of it as wondered whether the poster was actually referring to PAYE and including EMPR rather than just EMPE NI.

I'm a believer in paying a fair wage before employing a dividend policy but if that really is just employee NI then unless this is a company caught under IR35 rules I am in full agreement with you.

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.



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If you're using Sage payroll there is a box to tick when setting up an employee as a new starter to determine a) if they are a director, and b) if they are a director the method by which their NI will be calculated. This can either be on a normal monthly basis accoriding to earnings if they are receiving proper salary, or it calculates at the year end based on earnings. You need to look at what you've ticked

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Thanks all.

Phil yes it is his own company.

I remember last year when the accountants did the payroll, his NI was quite high the first few months then it dropped down considerably each month.

What my Director was saying that it didnt look right as you would of thought the first 3/4 months would be high then it would start to drop, not start low, then go high and come back down again.

Like Shamus said earlier as long as everything balances out at the end of the year, then everyone should be happy :), didnt have any queries last year so fingers crossed everything will be ok for this year

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What you describe sounds like correct operation of NI rules for directors under HMRC Guidance CA44.

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