I have a new bookkeeping client who is also a new start up business. It's a limited company. Up till now the director has funded everything himself to get the business up and running and all associated costs have been posted to his DL account. As of January 2016 he wants to start taking a salary out of the business. I am not really experienced in Directors salary so am looking for some guidance. I know he can take his personal allowance without it attracting any tax but it's the NI part I am unsure about.
He wants me to start processing his pay from January onwards.
Help very much required and appreciated.
I am looking on GOV.UK but find their site a nightmare and once you start reading it can become more confusing.
If he is looking to avoid NIC altogether then his salary would need to be £8060 or less.
He will then pay 12% on any additional salary. (A word of warning here, he will not be able to claim employment allowance from April 2016 so there will be an additional 13.8% employers liability from that date)
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
If you do not know how to run payroll then are you sure you should be providing this service? Only do it if you have the expertise, PII cover, software etc., otherwise get his accountant to do it.
You will need to file RTI submissions unless he is being paid under the LEL. The accountant will be able to advise the most tax efficient amount since it depends on any other earnings this tax year etc.
I don't think that Elaine has an issue with Payroll, her question is specifically in relation to directors salary and not being sure if there was any additional issues that needed to be considered.
HMRC's website is adequate at giving out the basics but since its been dumbed down (shows what HMRC thinks of the people who use it!) its pretty much impossible to find anything that goes beyond the absolute basics.
Personally I would far rather read a piece of legislation in tiny writing in original form than read only what someone at HMRC thinks that you might want to know in the style of a 1960's Ladybird Peter and Jane book (except the HMRC site uses bigger writing and less complex words).
Personal view is that upside down crucification is too good for the people who replaced an excellent system of tax reference pages with the dumbed down replacemnent aimed squarely at the small minority of academically challenged business owners with zero attention span.
I do not think that anyone deserves to be berated for asking for help after trying to use the often less than useful HMRC pages.
kindest 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.
You will need to file RTI submissions unless he is being paid under the LEL. The accountant will be able to advise the most tax efficient amount since it depends on any other earnings this tax year etc.
If he has other earnings then he'd have to do it under RTI even if his salary was below LEL.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
I think everyone has to run a payroll now regardless if whether they are paid under the LEL.
That's news to me Matt, can you point me to the relavent guidance please?
Has there been something on an agent update somewhere Matt? Im unaware of this too.
Ive just checked the Gov.uk link which still says.... you are exempt from PAYE if none of your employees is paid £112 or more a week, gets expenses and benefits, has another job or gets a pension. https://www.gov.uk/paye-for-employers
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Sorry for not introducing myself, I was only trying to be helpful.
I am a tax adviser with my own accountancy practice and came across this site recently and was really interested in some of the content and day to day issues covered. I am a regular on Accounting Web where no intros are normally made so did not know the etiquette here and was looking for a change so I hope it is OK if I join and post from time to time.
I agree that HMRC's site is not that helpful and should not be relied upon. Even if the OP regularly runs payroll then making a decision on the most tax efficient salary for a Director may not be covered by her PII so I stand by my original advice that the Director may need advice from his accountant. I don't see how engaging a payroll company would resolve the issue since they only process the amounts provided, the optimal salary would have to be given to them surely?
No payroll scheme is required unless an employee is paid at or above the LEL.
Briefly for the current tax year - if the Director has no other earnings then the personal allowance is the optimal salary, although make sure the employment allowance is claimed and a small amount of employee's NI will be payable. If he does not want the compliance issue of making NI payments, then £8,060 is the optimal amount where no tax/NI is due. If the Director has not been a Director for the whole tax year then there will not be a full year's NI allowance so some NI may be due so a lower salary may be more tax efficient (plug in some numbers into the payroll to determine this amount), also watch out for start dates in your payroll system and enter the date he became a Director and not the date the payroll scheme started if it is new. Choose the cumulative method for Director's pay, annual schemes are also available. If there are other earnings or if the Director earns >£100k such that no personal allowance then the answer may be different. If no other earnings then it is recommended to pay at or above the LEL to obtain a full year's NI for state pension purposes.
I reckon we would all be pleased to nab one from aWeb. You will find us a much friendlier site, on the whole. We love our debates, serious discussions and swapping of info but we also do have mad moments of silliness. This in part, down to a lot of people on here working from home on their own so there is a bit more camaraderie. Im sure you will find it all very different to aWeb. I use both sites, although I do not post much on Aweb as I am a bookkeeper, rather than Accountant, so generally use it if some of the my technical questions do not get an answer on here. (This is usually down to those than can help being ultra busy and having to stay away from the site on occasion, rather than no-one knowing).
It is certainly great to have a tax advisor and someone of your calibre helping out on here and I look forward to hearing more from you.
Interesting from this post Elaine has posted a couple of others, another being around payroll training. I did mention on that about the need to understand a Directors tax position before deciding where to pitch the payroll, although you have given more detail here so Im sure quite a few people appreciate that position.
The under the LEL/no need for PAYE scheme has had me pondering of late, following another posters question that no tax planning had been undertaken between the divi/wage split until way after the financial year ended. This particular company had no PAYE scheme set up so to allow an amount via salary, even on the annual basis wouldve meant that company wouldve been in breach of RTI and then subject to fines for non compliance. I usually encourage my clients to get the advice at the start of each year, but also around month 10 of the financial year for a overview of where the end position on DLA's could be, although currently all of mine have PAYE schemes set up anyway.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
The trouble with paying under the LEL/No need for PAYE scheme is missing NI credits/contributions on the individuals National Insurance record for benefits including the state pension.
Having said that - Men born on or after 6 April 1951 and women born on or after 6 April 1953 will only need 10 qualifying years to get the new State Pension! Can this be right? This is what it says on the paperwork I have just received when I checked my National Insurance record.
The trouble with paying under the LEL/No need for PAYE scheme is missing NI credits/contributions on the individuals National Insurance record for benefits including the state pension.
Having said that - Men born on or after 6 April 1951 and women born on or after 6 April 1953 will only need 10 qualifying years to get the new State Pension! Can this be right? This is what it says on the paperwork I have just received when I checked my National Insurance record.
Hi Frauke
I recall seeing that about the 10 years (seem to recall a conversation with John on here), although understood its to get 'some' state pension rather than full, but dont quote me on that! I had 28 1/2 years out of my required 30 years before I became self employed - scary thought that Im now so old!
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Hi, Back to my original request for help/info on directors payroll.
I spoke to HMRC and they told me other than the way the NI is calculated it's no different running payroll.
They mentioned something about cumulative NI.
I didn't ask but is this to be paid to HMRC monthly or yearly?
Elaine
To get the cumulative directors NI calculations you just tick the appropriate box in your payroll software when setting the employee up. The software will do the rest.
