I'm sure this has probably been covered but I can't find anything that answers my question exactly.
I have just taken on the bookkeeping for a ltd company which has one director. His last bookkeeper has put in a salary for the previous year for the director which is above the secondary threshold. Would he not need to be registered for PAYE in this case?
I'm not totally clear on what the difference is between primary and secondary thresholds and lower earning limit. Can someone tell me the best salary to avoid PAYE? I believe the director has been paying NI payments as if he is self employed. Can you avoid PAYE but still get NI credits?
I'm not doing his accounts but he has asked me the question and it's a good learning topic for me.
If a director (or indeed any employee) is paid between the Lower Earnings Limit and the Secondary Threshold you'll avoid NI, and you're likely to avoid PAYE unless you have other income, but the company need to operate as an employer, ie be making PAYE returns to HMRC. That applies if any employee or director earns over the Lower Earnings Limit in any week or month.
It sounds as if the client (and maybe their previous bookkeeper) is confused about the difference between Ltd and Self-employed. Unfortunately that error could result in expensive penalties for the client which you may need professional advice to mitigate.
Oh dear. I really don't like being the bearer of bad news but it seems be happening a lot at the moment! So if he takes a salary below the lower earnings limit can he then make voluntary contributions for the state pension? I'm just thinking what I can suggest to him as I know that he hasn't done PAYE for the last few years and that his salary was above the LEL. I can't change that but I can try to help him going forwards.
This sort of thing wasn't covered in my AAT exams and I'd like to know more about it as I'm sure it's going to come up again. Do you know of any good books I can read? I've had a look on Amazon and there doesn't seem to be much.
the book that you want is Taxation by Melville, FA12 edition. (see here : http://www.amazon.co.uk/gp/product/0273773011/ref=ox_sc_sfl_image_5?ie=UTF8&smid=A3P5ROKL5A1OLE)
You can even look inside the above link and you'll see how easy to read it is.
It covers everything in depth up to ACCA F6 level and is recommended reading for ACCA, ICAEW, AAT, ATT, AIA and IFA.
Its covers all taxes (Personal, Corporation, Inheritance, VAT, National Insurance, Overseas aspects, etc).
Except for FA10 which I foolishly loaned to someone (and never saw again) I've got every version back to 2006.
Its no Tolleys but its just what everyone dipping their toes into taxation needs.
There are plenty of other books such as the ACCA F6 and P6 study materials which are a lot different to the AAT study materials.
I think that the real core difference is that AAT teaches one to work within an accounts team where ACCA is teaching how to give advice and that very much comes over in the materials although it does have to be said that Kaplan and BPP do have a tendency to greatly cut down the ACCA materials and sell that as AAT study texts.
I'll apologise in advance for the prices of these books but can assure you that you will be very. very happy with the Melville text which is aimed at higher level students and bookkeepers and Accountants in the SME market (there are around 500 embedded questions in there as well to really make sure that you properly understand the subject matter).
HTH,
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.
I have just spoken to the director concerned. His last bookkeeper told him that he should pay class 2 national insurance to avoid doing PAYE and to keep his contributions for his state pension. Obviously as he was over the LEL he should have been doing his PAYE and not doing NI contributions but if this year's salary is under the LEL can he continue to pay Class 2 NI? I thought it was only for self employed and as an employee, he's not.
Some bookkeepers really do give the rest of us a bad name don't they!
If your client has that advice in writing he could sue the previous bookkeeper for the losses he may be about to incur by way of penalties on the back of that bad advice.
Of course, always bear in mind that whilst the client is telling you that the previous bookkeeper gave them this advice, he could just be covering up his own mistake by blaming someone not in a position to defend themselves.
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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.
Unfortunately, this is just the tip of the iceberg. I'm finding all sorts of other stuff that isn't allowable as well. I'n not sure what to do really. I can make sure things are right this year but don't really want to get involved in last year as I don't feel I know enough about the subject to argue the point. Will wait for my shiny new tax book to arrive so that i have something to back me up!
even though you may know much of the first few chapters already I would start at the beginning and work your way through systematically doing all of the tests as you get to them and then again a couple of days later and then again a couple of weeks later to ensure that it's really sunk in.
With tax I also tend to write the interesting questions out on the larger size index cards with the answers on the back and will do a handful of them at random occassionally.
You will find things that go in without trying and other elements that take a few reading before they are driven home but by the end of the book although not ready for the CIOT exams you will be as good as someone doing ACCA paper F6 or the ATT exams.
Well, that's you lost to Melville for the next couple of months.
I'll have money on it that after reading FA12 you also buy FA13 at the end of this year.
FA12 is still in my Amazon basket at the moment but I've got until I get to the end of the Kaplan P6 study text (only delivered late last week) to wait for it to come down in price a little.
For one book, considering the content Melville is brilliant. But buying three every year (Kaplan P6 Study text, Kaplan P6 Exam kit and Melville Taxation) I try and make sure that I get the best deal that I can and at £40 Melvilles still a bit too expensive for me at the moment.
Hope that you have many hours of happy reading, and I'm sure that your purchase will pay for itself a dozen times over,
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.
Set them up as an employer and pay the director £624 per month (secondary threshold of £144 per week x 52/12). This will get them credit for their pension and other rights but wont have any PAYE or NI to pay.
Cancel the class 2 NIC as dont need to be paying.
If they want to withdraw more than £624 per month then take to the directors loan account and sort out at the year end via dividends (provided they have distributable profits to declare)
Thanks Mark but I'm doing the bookkeeping for 2011-12 so it's a bit late for PAYE now isn't it? Is it too late for 2012-13 or can he still register now? His last accountant told him to register for class 2 to keep his Stamp going and I guess to avoid PAYE. Feel sorry for the guy really as he has had bad advice over the last few years.
Feel sorry for the guy really as he has had bad advice over the last few years.
But it will be much better going forwards.
Your still within 12/13 and this would also be a good time to get it all sorted before RTI kicks in.
I don't think that this guys last accountant was qualified as from what I read he's thinking of a limited company in terms of self employment.
How can anyone take advice from someone whose lack of knowledge is so fundamental.
Far better advice there from Mark and it didn't cost the guy a penny.
kind regards,
Shaun.
__________________
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.
Thanks Mark but I'm doing the bookkeeping for 2011-12 so it's a bit late for PAYE now isn't it? Is it too late for 2012-13 or can he still register now? His last accountant told him to register for class 2 to keep his Stamp going and I guess to avoid PAYE. Feel sorry for the guy really as he has had bad advice over the last few years.
Princess
You could register for 2011/12 and submit payroll for that year but given now 8 months after the period then the interest and penalties would probably outweigh doing so.
You are still in 2012/13 so can register now. What I would do is take your tax free amount of £624x12 = £7488 and spread over 3 months for Jan, Feb, Mar at £2,496 so by the end of the tax year you have effectively paid £7488.
No reason to be paying class 2 NIC if a limited company and paying salary as above as that will cover his stamp without any NI or PAYE due. Would advise them to cancel class 2 NIC going forward.
The plot thickens. I was going to suggest to the client that he takes a salary under the LEL to avoid the PAYE issue but HMRC have just told me that he would need to be registered for PAYE regardless of his salary. I pointed out that their website says that you only have to register if there is an employee earning over the LEL and she said that's not the case, she asked a "more technical adviser" and came back and said the same thing. They have said this year he can enter it as "Other income" on his tax return but that he has to set up PAYE going forwards. We seem to have avoided a fine for 11-12!
