post removed because whilst not incorrect it's confusing and I do a better job of the explanation in my follow up post.
Sorry Eunice, I should have taken more time over the original reply.
-- Edited by Shamus on Monday 10th of June 2013 01:59:22 PM
__________________
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.
Wonder if anyone can help, I am doing the payroll for a company which has only one employee. He became a Director of the company with effect from
30th May 2013 and I am now running his June salary (to be paid on 14th June). When I process the payroll (I have changed his NI status to director,
using the normal employee method), his NI contribution looks OK but it's telling me there's no tax deduction this month (I'm, using Basic tools RTI version).
He earns over the thresholds and has properly paid tax for the first 2 months of the tax year, his code is 944L.
Thanks for the reply, much as I hate to disagree with you, knowing what a font of knowledge you are, this is from the HMRC website :
"Employee starts or stops a directorship
If an employee starts or stops a directorship, the way you work out their National Insurance contributions (NICs) will differ from that for your other employees. This is because directors' NICs are calculated on the basis of an annual earnings period, rather than the normal payment intervals (usually weekly or monthly) used for other employees.
PAYE tax is still deducted in the same way for directors as it is for any other employee. "
for directors where the annual salary breaches the LEL and all that you have done is divided the salary up into 12 chunks you can, if you wish, make payments on account of directors NICs during the tax year based on the actual intervals of payment in the same way as for other employees.
Similarly you can choose to annualise
For the PAYE tax directors don't pay tax until their cummulative earnings have breached the tax threshold.
So, for example.
If the director pays themself £1000 in month 1 then hypathetically they owe tax as they have breached £786.67 (944l/12)
If however they pay themselves £2000 in month 3 having not taken any money previously then they owe no tax as by that stage they will not have reached the threshold for that stage of the year (£2360).
An employee would have paid tax on that regardless but a director does not pay tax until their salary exceeds where it should be.
Now the confusion around haphazard payments is that the director may not pay themselves again for (say) another three months and at the end of the period they may not have paid themselves enough to pay tax but following the strict letter of the regulations where (say) at month 2 they paid themselves £2k they would have owed tax which at the end of the period they would claim back if they have not breached the PAYE threshold at the period end.
Whilst not strictly to the letter of the regulations it is common practice that directors do not pay tax until they breach the tax allowance.
And if there is any debate over the matter simply pay a regular sum from the DLA and clear it with an annual salary payment and / or dividend at the period end.
Same effect, different tax payment schedule.
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.
