Am I right in thinking that the maximum pay that a director can pay himself for 2013-2014 is £7,755 for the year (i.e., the NIC threshold)?
Also, if this is the case and the director avoids paying tax and specifically NIC, does this pay somehow count towards the directors NIC/Pension records even though they never made a contricution in the year??? I have never understood this of it is indeed correct.
As an aside.....I have a scenario that needs a little thought and a bit of excel:-
Two directors with the same rights and shareholding but one wants to work less than the other. No problem here, but they want to arrange things so that the amount of days worked reflects what they are paid. So, with the tax/NIC thresholds above in mind, there needs to be a way to pitch the wages at a level to be most tax efficient whilst making sure the total pay (including dividends) matches the days worked. The dividends I think need to be exactly the same although if they were allowed to declare two different dividends for a month for the directors, it would probably solve everything. Lets just say that the profits are such that it allows the directors to pay a consistent dividend of £3,000 each per month without having to worry about available profits etc. Any ideas??
In answer to the first part - regarding it counting, quoted from another source
"No NICs are actually payable but a notional Class 1 NIC is deemed to have been paid in respect of earnings between LEL and PT to protect contributory benefit entitlement."
Am I right in thinking that the maximum pay that a director can pay himself for 2013-2014 is £7,755 for the year (i.e., the NIC threshold)?
Also, if this is the case and the director avoids paying tax and specifically NIC, does this pay somehow count towards the directors NIC/Pension records even though they never made a contribution in the year??? I have never understood this of it is indeed correct.
The maximum amount that a director can pay himself without any PAYE or National Insurance implications (for him and the company) will be the secondary earnings threshold, which is £7,696 in 2013/14.
Yes, as long as the director earns more than the lower earnings limit (£5,668 in 2013/14), it will count as a qualifying year towards his state pension. I believe that he'll also be deemed to have earned £x (I don't know the 2013/14 figure offhand but this is £14,700 for 2012/13) for the purposes of the second state pension.
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Pearce & Co - Chartered Accountant and Chartered Tax Adviser
I have another question to add to this. I have a new client who has paid himself such amounts but never started a PAYE scheme. How will anyone know about his notional Class 1 NI?
I know. But for the last 20 years he has apparently been advised by several different accountants that he doesn't have to register for PAYE because he has no tax/NI to pay. I'm having a hard time explaining to him that wasn't right. He was told to pay Class 2 NI instead. Doh. He called HMRC last week and told me that they also told him he doesn't need to register (can't believe that!). I guess I'm going to have to say it again. and again.
I know. But for the last 20 years he has apparently been advised by several different accountants that he doesn't have to register for PAYE because he has no tax/NI to pay. I'm having a hard time explaining to him that wasn't right. He was told to pay Class 2 NI instead. Doh. He called HMRC last week and told me that they also told him he doesn't need to register (can't believe that!). I guess I'm going to have to say it again. and again.
I find it hard to believe that "several different accountants" could get that wrong, to be honest. It is hardly something that isn't well known.
If HMRC told him he doesn't need to register then he didn't correctly explain how much salary he was paying.
Actually, I think you're right. I think they probably told him and he just didn't do it. Hey ho. Why do I seem to be getting lots of strange customers and none like the ones that are described in all my text books?!
Ah and I have just found out that payroll was processed by another Accountants before we started to process on 31/07/2012 which could explain this?
I'd check the full brought-forward history. Though from the figures you mention it sounds as if there isn't any or the PAYE and NI would be higher (assuming tax code is 810L).
-- Edited by Tom McClelland on Wednesday 20th of March 2013 10:58:00 AM
Ah and I have just found out that payroll was processed by another Accountants before we started to process on 31/07/2012 which could explain this?
I'd check the full brought-forward history. Though from the figures you mention it sounds as if there isn't any or the PAYE and NI would be higher (assuming tax code is 810L).
-- Edited by Tom McClelland on Wednesday 20th of March 2013 10:58:00 AM
Posted before I saw this sorry. No previous pay figures were entered which makes it even more confusing. He is also a subcontractor. I'm not sure if this could affect this in any way?
And from an NIC Holiday scheme point of view. Would he be eligible to apply seeing as he has his directors wage and the CIS payments he receives as a subbie?
-- Edited by Noola on Wednesday 20th of March 2013 11:01:23 AM
-- Edited by Noola on Wednesday 20th of March 2013 11:04:00 AM
Sorry to jump in. I have a question about directors pay which once again sage support can't answer. Does anyone else have this problem with sage??? It seems pointless even ringing them sometimes.
I understand that Directors tax and NI is only deducted once they meet the threshold, however one director in particular who is processed in the payroll system at £1000 gross per month, the system started deducting tax and NI when his pay reached £7170.91. When I minus the current threshold from this amount I get a minus figure and so multiplying this by 12% to work out the employers NIC for example, the figure I am getting is not as below:
The employers NIC amount that was actually deducted is £115.21, Employee's NIC is £88.31 and Tax is £82.60.
I've even had one of the accountants from our office trying to help me work out how the system has calculated this.
Does anyone have any ideas? I am probably missing something completely here.
I've asked this before. Why are you using an expensive product that provides you with rubbish support, in your opinion?
I don't understand the full story of this director you're talking about.
How did the earnings of someone who is paid £1000/month reach £7170.91 rather than an exact multiple of £1000 ? I must be missing something.
Also don't confuse PAYE and NI which are calculated completely separately. Directors have identical PAYE rules to everyone else, so if you don't agree with the director's PAYE either then almost certainly either you have a corrupt Sage payroll database or you're misunderstanding something about their payment history in the current year.
Forget the NI which is more complex. Work out why the PAYE is wrong and that'll probably explain the NI too.
It's not my choice unfortunately otherwise I would definitely do away with sage support.
Sorry I forgot to mention it was calculated on a net to gross basis and in the 7th month (31/01/2013) the system automatically set his gross pay to £1170.91
Presumably his subbie earnings are entirely separate from the PAYE earnings that you're processing so they should have nothing to do with any of this.
Net earnings of £7000 for the year by the end of Jan would be sufficient to trigger PAYE deductions for someone with 810L, which would be grossed up. However grossing up those PAYE deductions shouldn't however have been enough to push annual earnings past the directors NI threshold unless either (a) he was appointed director since 6/Apr/12 or (b) the wrong NI thresholds (last years?) are being used in that company.
I have just completed the PAYE tax calculator form on the HMRC website and the figures it has given me are:
Employee tax code: 810L Pay this month: £1170.91 Previous total gross pay to date: £6000
Results:
Total pay to date: £7170.91 Pay adjustment (which I take is the total free pay to date) £6757.60 Total taxable pay: £413.31 Total tax due to date: £82.60 (which matches what I have)
However I have no idea how the system has worked out the employers NIC and Employees NIC.
I have clicked on the employment tab, then year to date values, then the NIC tab in the payroll system and the figures there are:
Earnings up to LEL: £4708.00 Earnings LEL to PT: £1727.00 Earnings PT to UAP: £3279.55
Where a director is not a director for a full PAYE year NI is calculated according to the provisions of CA44. (page 35). (google is your friend, try "HMRC CA44" as your query)
