PAYE for sole director of Limited Company - The Book-keepers Forum (UK)

Lyndsey · Senior Member

PAYE for sole director of Limited Company

Tom McClelland · Senior Member

If he took 20k as pay then there should be a substantial employer's NI cost, and payments to HMRC for PAYE and NI so that would be fairly easy to spot in whatever accounts you've been given. (and indeed the PAYE/NI payments would show in the bank transactions)

Maybe the 20k is dividends, or repayment of a startup loan from the director to the company if the Directors Loan Account was previously in credit.

Cheshire · Master Book-keeper

As Tom said it should be obvious from the nominals, but am assuming you haven't got a TB from the year end. He will need to speakto his Accountant to authorise him to speak to you, you need to do usual prof clearance to take on the bookkeeping and then ask for whatever you need, including info on TB incl any year end adj and payroll. Your brother in law should remember if he applied for a payroll scheme, unless his Accountant did it all for him, but he still would've received some letters with all the info.

Care what advice you give him as you need to check you are covered by your PII etc.

Lyndsey · Senior Member

I can only see HMRC for VAT, nothing for PAYE/NI. I will check with him

Thanks

Lyndsey · Senior Member

I've just spoken to him this morning, £9700 was PAYE and the rest dividends.

He pays himself in bits here and there, no regular monthly payments. Would the be difficult to do as paye? Or would you just issue a paye slip for total monthly payments? And would you have to do PAYE monthly even if he hasn't paid himself.

And dividend you would have to create div slip for each payment? Right? I worked in corporate actions for most of my employed life (before kiddies) so am only used to how listed companies work.

Cheshire · Master Book-keeper

Hi Lyndsay
Spoken to the Accountant or the Brother in law?

If the Accountant has done the wages then he should have been doing the returns to HMRC and the very least you should have been copied into were the reports showing how much was via payroll each month, plus possibly payslips (although not everyone supplies payslips these days!), plus any P30s (see below **). This would enable you to do the necessary journals etc.

You need to allocate the pay amounts per that report via his DLA on the dates on or after the RTI report dates (care here re the dates as payroll has to be reported before its paid!)

Allocate all the other bits and bobs he withdraws (plus any personal bills he pays through the company) via the DLA.

At the end of the year the Accountant should work out exactly what is allowable as dividends and then tell you so that the adjustment can be made in the software (along with any other year end adjustments) at which point your Brother in law needs to do the appropriate Board resolutions and Dividend tax voucher (care this is all changing in April in terms of the tax element).

It is worth mentioning to your Brother in law that he really shouldnt use the Business bank account as his personal account - he wouldve done this perhaps in his days of being a sole trader, but his responsibilities towards the Incorporated business are very much different. People do have a habit of forgetting and we have to remind them constantly! He does need to take care that there will be available profits for him to take a dividend, so he doesnt end up with an overdrawn DLA at the end of the year.

If you havent been involved with dividends before and dont know what you are doing with them I would ask the Accountant to assist with the relevant paperwork/hand holding.

Other thing to bear in mind is that the payroll amount will have incurred him in some PAYE due to HMRC so you need to find out what that is so that it can be paid across (** the P30 would show you the amounts) - so you will need his Payroll reference numbers from the Accountant.

If you have only spoken to the Brother in Law then you are going to encounter some issues with the payroll as you will already be in breach of regulations regarding RTI etc. Deal with that one depending on your answer.

Lyndsey · Senior Member

Thanks very helpful! I only spoken to my brother in law (what accountant works on a Sunday haha!). I will have to speak directly to his accountant as he doesn't really understand everything involved completely. He did pick up a dodgy accountant a few years ago (when I was in training), but I think he's got a proper one this time (I hope!).

I did mention that it's not best to take so many small payments. I am not sure about the rti, I will have to see what the accountant says.

Cheshire · Master Book-keeper

Lyndsey wrote:
Thanks very helpful! I only spoken to my brother in law (what accountant works on a Sunday haha!). I will have to speak directly to his accountant as he doesn't really understand everything involved completely. He did pick up a dodgy accountant a few years ago (when I was in training), but I think he's got a proper one this time (I hope!).

I did mention that it's not best to take so many small payments. I am not sure about the rti, I will have to see what the accountant says.

Quite a few on here! I didnt want to assume, lol.

Leger · Master Book-keeper

Tom McClelland wrote:
If he took 20k as pay then there should be a substantial employer's NI cost

Very doubtful, if his accountant has done their job properly.

It may well be that 8k has gone through PAYE with the rest declared as a dividend at the end of the year, which could explain why there are no paye tax payments showing from the bank.

It's the accountant who will have the answer.

Cheshire · Master Book-keeper

Good morning John
Its £9.7k according to the brother in law, which will kick in PAYE NI wont it. Waiting on the Accountant - but unlike us, he is probably kicking back on a Sunday. Or doing his CPD.

Leger · Master Book-keeper

Hi Joanne

Yes, apologies, I missed your earlier convo with Lyndsey when I posted. That sunday morning accountant working makes sense now lol.

Yep, like you say there is some NI to account for, although this is likely to have cropped up on the payroll somewhere around January to March. I calculate roughly £210 in ni payments (I'm assuming the employers allowance was claimed, if not, another £240 on top)

Tom McClelland · Senior Member

Leger wrote:
Tom McClelland wrote:
If he took 20k as pay then there should be a substantial employer's NI cost
Very doubtful, if his accountant has done their job properly.
It may well be that 8k has gone through PAYE with the rest declared as a dividend at the end of the year, which could explain why there are no paye tax payments showing from the bank.
It's the accountant who will have the answer.

You've lost me. If someone takes £20k as pay how can an accountant "doing their job properly" avoid a substantial PAYE/NI bill, except in extremely unusual circumstances?

Cheshire · Master Book-keeper

Hi Tom
I think John means that the Accountant shouldve been ensuring any withdrawals would be split between payroll and dividend to keep his tax and NI bill down whilst (attempting) to ensure there wasnt an overdrawn DLA caused by not having enough profit to declare it all as dividend. But yes if he took it all as pay, there would be a chunk of PAYE to pay.

(Edited to change would've to should've)

-- Edited by Cheshire on Sunday 28th of February 2016 02:08:53 PM

Tom McClelland · Senior Member

Cheshire wrote:
Hi Tom
I think John means that the Accountant shouldve been ensuring any withdrawals would be split between payroll and dividend to keep his tax and NI bill down whilst (attempting) to ensure there wasnt an overdrawn DLA caused by not having enough profit to declare it all as dividend. But yes if he took it all as pay, there would be a chunk of PAYE to pay.

(Edited to change would've to should've)

-- Edited by Cheshire on Sunday 28th of February 2016 02:08:53 PM

Yes, It just seems my original wording is quite clear so I'm not sure why John corrected me. I said, "If he took 20k as pay"; pay is not dividends is not DLA.

Referring to dividends or DLA as "pay" is exactly the kind of inexactitude that could cause a mistake in the first place. Directors should be clear that company bank account is not their property, and when they draw on it they should always know what they're doing legally, be it pay, dividends, DLA, expenses, or something else that I've not thought of in that list!

abacus12345 · Guru

All sounds like conjecture to me.

Cheshire · Master Book-keeper

Tom McClelland wrote:

Yes, It just seems my original wording is quite clear so I'm not sure why John corrected me. I said, "If he took 20k as pay"; pay is not dividends is not DLA. Im pretty sure that John didnt mean to correct you, I think he was just trying to show the OP what the Accoountants role is.
Referring to dividends or DLA as "pay" is exactly the kind of inexactitude that could cause a mistake in the first place. Probably not helped by the word 'pay' itself where I suppose it can be used as payroll or pay as in physically pay a bill for example. But get where you are coming from. In part why I suggested, what you did next, for Lynsday to speak to her B-I-L. Directors should be clear that company bank account is not their property, and when they draw on it they should always know what they're doing legally, be it pay, dividends, DLA, expenses, or something else that I've not thought of in that list! (Gas bills is the one that comes to mind in the something else list! along with flowers for their girlfriends, huge bar bills, their shopping from Tesco etc. Yes some use it as an extension of their wallets dont they!!)

Cheshire · Master Book-keeper

abacus12345 wrote:
All sounds like conjecture to me.

As it is quite a lot on here. But hopefully giving enough food for thought to sort it out.

Lyndsey · Senior Member

This is all very helpful for me as I have only really dealt with limited accounts in text books, which don't always reflect how things are done in the real world! All my clients are sole traders/partnerships. It's only because he is family...

Yes sorry "pay" may be a little wrong. All I had was a copy of bank transactions in excel, which has transfers to his personal account. I haven't any info of how his accountant has dealt with it. If he was a sole trader, this would not be an issue, I was just unsure about the new rti reporting on it.

His account deals with it monthly, he is inputting the entries into a spreadsheet and sending that to accountant to deal with. But he wants me to pick up bookkeeping and anything I can help with. I want to make sure I am ok with everything before taking stuff on and what to charge...

Cheshire · Master Book-keeper

Cheshire wrote:
abacus12345 wrote:
All sounds like conjecture to me.
As it is quite a lot on here. But hopefully giving enough food for thought to sort it out.

Hi Lyndsay - when I say 'on here' - just to clarify I didnt mean your post, so sorry if it came across that way. I mean on BKN as a whole.

Cheshire · Master Book-keeper

Lyndsey wrote:
This is all very helpful for me as I have only really dealt with limited accounts in text books, which don't always reflect how things are done in the real world! All my clients are sole traders/partnerships. It's only because he is family...

Yes sorry "pay" may be a little wrong. All I had was a copy of bank transactions in excel, which has transfers to his personal account. I haven't any info of how his accountant has dealt with it. If he was a sole trader, this would not be an issue, I was just unsure about the new rti reporting on it.

His account deals with it monthly, he is inputting the entries into a spreadsheet and sending that to accountant to deal with. But he wants me to pick up bookkeeping and anything I can help with. I want to make sure I am ok with everything before taking stuff on and what to charge...

The pure bookkeeping side is in a way no different in that you will be allocating anything that is business related to the relevent income/expenses codes (etc). Main difference is anything he draws instead of going to his drawings will be parked in the DLA. If you havent done wages before I wouldnt take this on as whilst on the face of it it might seem simple for a sole Director, you do need to be careful when completing P11Ds for any benefits in kind. Plus the advice as to the amount taken by way of a wage needs to come from him as part of the tax planning process. Also, until you understand the tax/dividend/CT rules etc I would leave the Accountant to complete the year end. Might be worth finding out how much the Accountant will actually charge your B-I-L if you only take over the actual bookkeeping and any VAT.

Some things to consider - perhaps a payroll course but certainly hoovering up anything on HMRC's site. Plus that AAT course you were talking about? Then perhaps ATT?

Lyndsey · Senior Member

Yes signing up for AAT next week :) I did payroll diploma with ICB but this was all pre rti (about 4 years ago). I've not done anything else with it. Something I possibly need to revise with up to date material, any recommendations would be appreciated. I've ordered the melville tax book for some light reading :) I've had a little while off after having my second child. I've kept on top of most tax stuff as I deal with that side of husbands business.

I've been keeping an eye on this forum as it is very useful to learn from others.

Thanks

abacus12345 · Guru

Good choice of book. I use HMRC for payroll. There are sage payroll courses, although I haven't completed one so I can't say much more than that. There is CIPP yet slightly overkill. There is a Kaplan level 2 payroll book. Mixed with HMRC and moneysoft, should see you ok

Cheshire · Master Book-keeper

Like I said - hoover up all you can form HMRC. That was the best way for me to learn about VAT to start with, although VAT was a boring read!! There are a few PAYE related webinars that HMRC run for free - might be worth popping your name down for them as they might get you started in the right direction. You can sign up for the ones about being a new employer even if you arent one! Plug in HMRC webinars to your search engine and you will find loads.

CIPP would be expensive, not sure about a Sage course. Whatever you do - dont sign up for the actual sage payroll product - mega expensive.

Leger · Master Book-keeper

Tom McClelland wrote:
Leger wrote:
Tom McClelland wrote:
If he took 20k as pay then there should be a substantial employer's NI cost
Very doubtful, if his accountant has done their job properly.
It may well be that 8k has gone through PAYE with the rest declared as a dividend at the end of the year, which could explain why there are no paye tax payments showing from the bank.
It's the accountant who will have the answer.
You've lost me. If someone takes £20k as pay how can an accountant "doing their job properly" avoid a substantial PAYE/NI bill, except in extremely unusual circumstances?

Hi Tom. I was referring to the employers NI, i didn't realise you meant PAYE in general. Obviously the employers allowance won't be available from April 2016.

Leger · Master Book-keeper

Cheshire wrote:
Tom McClelland wrote:

Yes, It just seems my original wording is quite clear so I'm not sure why John corrected me. I said, "If he took 20k as pay"; pay is not dividends is not DLA. Im pretty sure that John didnt mean to correct you, I think he was just trying to show the OP what the Accoountants role is.

Hi Joanne, I did understand that Tom was referring to pay, but I thought he was referring to the employers NI. It wasn't meant as a sleight on you Tom, and I apologise if it came across that way.

-- Edited by Leger on Sunday 28th of February 2016 11:20:43 PM

Lyndsey · Senior Member

Just a quick question, you need to apply PAYE and RTI submissions when earning go over LEL of £112 per week? Right? Is this accrued, so say for the first two months you get paid nothing, can you pay more in month 3?

Cheshire · Master Book-keeper

You need to consider the rest of the 'rule' about the LEL limit and not just the amount - Youre 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.

Ie gets expenses.....etc. so you can run a scheme if all of the above apply, but then as soon as one of that list kicks in for any one on the scheme, eg they start to get expenses etc then you need to set up a formal PAYE scheme.

Want hour a formal scheme, you run it the same way and keep full records just slightly less burdens in terms of reporting.

If you don't pay a wage weekly and take the accumulated wage in month three you calculate the tax and NI at the time of taking the wage, so strictly speaking you would have some to pay as the accumulated effect takes the wage over the monthly LEL. This would not stand up in the event on an inspection if you weren't running a PAYE scheme.

Leger · Master Book-keeper

Hi Joanne

Different rules apply for a Director and NI is calculated on an annual basis. So, for a Director, you can (say) pay £1200 every 3 months and avoid NI.

All other employees pay is calculated on the weekly or monthly LEL, as you rightly say.

Cheshire · Master Book-keeper

Leger wrote:
Hi Joanne
Different rules apply for a Director and NI is calculated on an annual basis. So, for a Director, you can (say) pay £1200 every 3 months and avoid NI.
All other employees pay is calculated on the weekly or monthly LEL, as you rightly say.

Hi John

What a bummer - I meant to add that to my post - was trying to cover off the angle for all other employees first and then got sidetracked before I had finished!!! (Number one son turning up in his new car!!)

Sorry Lyndsay - but now hopefully you have the full low-down between us!

Lyndsey · Senior Member

Hi Thank you for all the help on this :)

I just want to make sure I have this straight in my head...

Directors can take a "salary", if it is under the annual LEL (£5,824 pa), then there is no need for PAYE/NI/RTI, You just disclose on the directors personal self assessment at the end of the year. If this is over the LEL, you need to produce PAYE RTI reports BEFORE payment is made.

Directors can take "dividends" which have to be taken out of the Directors Loan Account, which is credited from the Profit from previous year. This is where I am a bit iffy... if you take a dividend out of current years profit, your DLA will be negative as the profit hasn't been transferred yet. How to accountants deal with this normally? What are the issues if this DLA is in debt?

I had a look an it appears that the AAT have dropped their payroll module at level 2, so was trying to find a similar workbook. I can see the ATT has a business compliance module (covering PAYE etc), most recent on Amazon being the FA2014, is this the most recent? BPP website doesn't have any of the study texts on there.

On another note, the new getting rid of dividend tax credit that is coming in. How does this impact sole directors taking dividend as compensation? I presume this will be a bigger tax bill? You get £5,000 dividend allowance on top of £11,000 personal allowance. Presuming no other income...

Take £5,800 Salary = 0% tax and NI
£5,200 + 5,000 dividend = 0% tax

So total can now take will be £16,000 tax free, before you would have to pay tax on dividend until you got into the higher tax bracket category, so ultimately the income will be double taxed - Corporation tax on company profits, then income taxed on directors dividends. Or am I missing something?

abacus12345 · Guru

No NI also means no contribution towards state pension

Leger · Master Book-keeper

Lyndsey wrote:
Hi Thank you for all the help on this :)

I just want to make sure I have this straight in my head...

Directors can take a "salary", if it is under the annual LEL (£5,824 pa), then there is no need for PAYE/NI/RTI, You just disclose on the directors personal self assessment at the end of the year. If this is over the LEL, you need to produce PAYE RTI reports BEFORE payment is made.
Correct, although both (in either order) can be done the same day.

Directors can take "dividends" which have to be taken out of the Directors Loan Account, which is credited from the Profit from previous year. This is where I am a bit iffy... if you take a dividend out of current years profit, your DLA will be negative as the profit hasn't been transferred yet. How to accountants deal with this normally? What are the issues if this DLA is in debt?

I think you're confusing DLA a little. Shareholders (usually Directors as well) can take dividends from profit after allowing for Corporation Tax, which will only be known at the end of the financial year. The DLA is a convenient way of recording Directors personal incomings and outgoings, and it's usually best practice to record the amounts taken out of the Company via the DLA and assess a final dividend at the end of the year. If the DLA is overdrawn at the end of the year it must be paid back within 9 months, otherwise the it will be taxed at 25%.

On another note, the new getting rid of dividend tax credit that is coming in. How does this impact sole directors taking dividend as compensation? I presume this will be a bigger tax bill? You get £5,000 dividend allowance on top of £11,000 personal allowance. Presuming no other income...

Take £5,800 Salary = 0% tax and NI You're better off taking £8060, as this will reduce the Ltd Co taxable profit and also earn a NI credit. It does mean operating PAYE of course but it's a small price to pay.
£5,200 + 5,000 dividend = 0% tax

So total can now take will be £16,000 tax free, before you would have to pay tax on dividend until you got into the higher tax bracket category, so ultimately the income will be double taxed - Corporation tax on company profits, then income taxed on directors dividends. Or am I missing something?
The income is not double taxed, although you can be forgiven for coming to that conclusion. The ltd co is an entity in it's own right, and is taxed on any profit's it makes. The shareholder can then withdraw the profit, which is then taxed as personal income, just as (s)he would if their money was invested in shares in another company.

-- Edited by Leger on Saturday 5th of March 2016 03:51:10 PM

Cheshire · Master Book-keeper

You don't process dividends through the DLA.

If you take below LEL wages you are depriving them of NI benefits, so the amount is decided as part of the general tax planning, which sorry to say you can't do under the AAT regs given where you are with your ICB training. Not as stringent as the ACCA but still have regs which only allow you to do certain work unsupervised.

How were you planning to extract the £5200?

abacus12345 · Guru

What you have to remember is that it's all good and well saving money today, but what about tomorrow?

If people continue to use the company as a shield against paying their fair share there will undoubtedly be changes.

April is the start of the dividend change, what's next? Companies being forced to pay equal to, or above LEL to connected directors, if there is enough cash available?

-- Edited by abacus12345 on Saturday 5th of March 2016 07:38:23 PM

Cheshire · Master Book-keeper

If more people saved today, and tomorrow and yesterday this country wouldn't be in the mess that it is, and I'm including the last Labour Government in this who had a policy of spending many many many mor times the amount they had!

There are a LOT of Directors out there who don't fair their fair share in NI, relying on keeping salary below the limit....so when you are in practice are you going to suggest they take more in salary just so the rules don't change and they play fair.

Of course things will change, but let's get this straight, it's not to create a level playing field but to squeeze tax out of every possible area it can, but introducing small changes so the general apathy of the national doesn't fight it. (In that respect whoever it's in power are just the same). Dividend tax is as we all said ages ago is the thin end of the wedge, but the petition that was raised gained only 55000 signatures because either people didn't realise properly it would impact them, didn't think it was a big deal as it was only a few piddle percent, or as I say, can't be bothered challenging what they consider is inevitable. Look at what happened when they introduced VAT and where we are no with 20% and the mess it causes. Although it all nice paid work for us isn't it!

abacus12345 · Guru

Yes ok Joanne.

Lyndsey · Senior Member

Re the DLA I think I must have misread something written above. I've got a head full of cold...

I am in no way planning on offering any type of tax planning service, I have nowhere near enough knowledge to do anything like that. I am just trying to get my head around the reasons behind incorporating. I was under the impression that many people incorporate to reduce the tax liability, which with the dividends tax credit change will not be as favourable anymore.

The double tax comment was really meant to compare earning as a sole trader vs earning as limited company. So if you make £20k profit as a sole trader, you would pay 20% tax on that above allowance, as a limited Co you would pay corporation tax plus income tax on the earnings above dividend allowance. Maybe I am simplifying too much ...

Shamus · Forum Moderator & Expert

I'm with Joanne's stance here but possibly from a different angle.

Its interesting that the Government has introduced terms such as "fair share" to the media when the UK tax system is far from fair.

The more one earns the greater percentage one pays of their income. People at the lower end of the income scale generally see that as fair but if they progressed up the income scales they would realise that it is not.

People should have a right to be treated equally so regardless of the level of income one is on there should be a single tax band.

The Government should also admit that there is no such think as national insurance, just an extension of tax that makes the rate charged more palatable top the electorate.

And whilst they are at it council tax is not a tax but rather extortion with no link to income and should be abolished completely as its sole use now seems to be social engineering (proper use of the term, lol) to clear people who have owned houses for decades off to cheaper accomodation.

A fair system would be 10k personal allowance where one pays nothing and then a straight 40% of everything that one makes being charged in tax (no NI, no council tax).

Someone on £20k will pay £4k, someone on £200k will pay £72k (no loss of personal allowance). People on higher incomes pay more but as a percentage of income that is actually fair compared to the current system that tries to be fair to be more "fair" to the group with the largest amount of votes.

However, whilst we exist within a "progressive" tax system I see no issue with showing that we can see the bigger picture on our clients overall taxes and working to ensure that our clients are actually taxed fairly which I appreciate is at odds with the Government and media's more manipulative and divisive use of the term in "fair share".

I would not for one moment suggest that people use tax avoidance schemes. But at the same time people should work within the system to ensure that they pay the right amount of tax and not a penny more and if that includes use of dividends then I see no issue with that... Remember that dividends are from taxed income so the reality is that people are trying to avoid 25.8% NI contributions on top of the tax if they had taken the money in salary.

I think that there was mention earlier in this thread about tax credits. Just to say about that there is a provision within tax credits legislation to state that if the company can afford to pay the director more (whether or not it does via dividends) the amount that the director "could" have been paid is taken as the amount that they were paid so reducing / erradicating the availability of tax credits.

My impression is that one was one of those things released to the media for other motives rather than having any basis in reality.

Note that there probably are some directors who do receieve tax credits who should not but once caught they will be forced to repay everything personally with interest, penalties and surcharges. In such instances as the director is gaining financial advantage illegally we would be required to report such undert our MLR obligations. To not do would render ourselves complicit.

p.s. if anyone wants to look it up the above is called a flat tax system. At the moment we have a progressive tax system. Countries with complex tax systems such as Germany and Holland are considering moving from Progressive to Flat tax.

Shamus · Forum Moderator & Expert

Morning Lyndsey,

I wasn't responding to you, we just crossed in the post (generally I dip in and out of responses whilst I'm also doing other stuff... Don't tell anyone that blokes can multi process!!!).

There are many reasons to incorporate, doing it for tax planning reasons should be lowest on the list as whilst business models remain constant tax laws change with the wind.

As you touch upon but from a different angle, the real issue between self employment and limited is NI.

The self employed on a like for like basis pay much less in NI on money they take from the business as a director is paid as an employee so the cost to the director / company is both employers NI at 13.8% and emploee's NI at 12% which is why to make things fairer people use dividends.

Tax is still paid on dividends in that the company tax only pay dividends from taxed profits.

If the dividend takes the taxpayer into a different banding they will pay additiopnal tax so from that side there is no real saving in paying dividends. Its all down to NI in order for working through an incorporated entity to be on more of an even footing with self employment.

You will find that many who are incorporated would not by choice have been limited as people are in many cases better off self employed. However, you will find that many corporate clients will not deal with the self employed (have you ever found an IT contractor who is self employed? They are either limited or work through a brolly company).

HTH,

Shaun.

abacus12345 · Guru

I totally disagree. Directors should be made to pay NI if there are funds to do so. Directors who receive connected dividends should have to pay NI. Why should directors, some of the most privileged people in the country, pay less into the system than someone earning minimum wage? How is that even remotely ethical?

Lyndsey · Senior Member

Thanks Shaun. I think you last point is the main reason why my BIL is a LTD rather than a sole trader. He runs a "branding" business and tries to compete with those massive London firms. A LTD VAT registered business has more clout than just a little sole trader.

The employer NI is quite a cost for those smaller businesses trying to employ people/run as a sole director Ltd. I see quite often businesses employees classing themselves as self employed, presuming to avoid the paye processing costs and employer NI (Lukily no client has as yet done this). But see it a lot in my other half's industry (motor repair). I don't think that it is technically correct.

With the change coming in April, I understood it as its not just when you go into a new banding you pay extra tax, but if you take dividends over £5000. So will likely affect the directors dividends.

Lyndsey · Senior Member

abacus12345 wrote:
I totally disagree. Directors should be made to pay NI if there are funds to do so. Directors who receive connected dividends should have to pay NI. Why should directors, some of the most privileged people in the country, pay less into the system than someone earning minimum wage? How is that even remotely ethical?

I agree directors should pay NI, but maybe not employers NI ontop. Maybe paid like a sole trader? On personal earning on their self assessment.

Or like Shaun say a flat rate tax on everything? Would make our job simpler

Shamus · Forum Moderator & Expert

abacus12345 wrote:
I totally disagree.
With which part? With all of the flat rate arguement or parts of it?
Directors should be made to pay NI if there are funds to do so.
Why should a director pay a minimum effective rate of 45.8% where the self employed would pay 29%? (at higher ratess the differential is worse).
Directors who receive connected dividends should have to pay NI.
Your arguement effectively says that everything that a director receives is salary effectively punishing directors compared to the self employed.
Why should directors, some of the most privileged people in the country, pay less into the system than someone earning minimum wage?
Why should people be villified and effectively fined for seeking to better themselves in a society that allows anyone to progress

How is that even remotely ethical?
How is taxing people until there is no point trying to better one's position?
We are constantly told that we have one of the lowest tax regimes but start adding all of the various taxes up and you will soon realise that the Governments statement is far from factually correct. NI is simply an extension of tax. For one person companies employers NI is an extension of personal NI.

Leger · Master Book-keeper

abacus12345 wrote:
I totally disagree. Directors should be made to pay NI if there are funds to do so. Directors who receive connected dividends should have to pay NI. Why should directors, some of the most privileged people in the country, pay less into the system than someone earning minimum wage? How is that even remotely ethical?

I'm against tax avoidance where companies use clever accounting to manipulate tax reduction (and it's usually the conglomerates who employ this strategy, simply because they can afford to pay the fees) however the sole director who used dividends to reduce their tax was a clear cut strategy approved by the Govt, that is until Georgy boy decided to change it.

The Director has a responsibility to the shareholders to pay the least amount of tax possible by legal means. If you're against that principle how are you going to apply tax planning with your clients interests at heart?

Regarding minimum wage: It can be the case that Directors will be on less than minimum wage, and no holiday pay if the Company can't afford it.

abacus12345 · Guru

I don't offer tax planning.

The director can choose whichever way he so likes. (I don't mean anything illegal!)

He signs the forms.

In my opinion everybody should pay NI. NI helps towards funding the greatest service in the world.

Directors who earn below minimum wage seldom stay directors for very long.

To add, I don't deal with LTD companies.

-- Edited by abacus12345 on Sunday 6th of March 2016 10:12:41 PM

-- Edited by abacus12345 on Sunday 6th of March 2016 10:30:26 PM

Leger · Master Book-keeper

Shamus wrote:
I would not for one moment suggest that people use tax avoidance schemes. But at the same time people should work within the system to ensure that they pay the right amount of tax and not a penny more and

I think that there was mention earlier in this thread about tax credits. Just to say about that there is a provision within tax credits legislation to state that if the company can afford to pay the director more (whether or not it does via dividends) the amount that the director "could" have been paid is taken as the amount that they were paid so reducing / erradicating the availability of tax credits.

My impression is that one was one of those things released to the media for other motives rather than having any basis in reality.

Note that there probably are some directors who do receieve tax credits who should not but once caught they will be forced to repay everything personally with interest, penalties and surcharges. In such instances as the director is gaining financial advantage illegally we would be required to report such undert our MLR obligations. To not do would render ourselves complicit.

Hi Shaun

I wasn't aware of that provision but it will be eradicated once Universal Credit is in place, and Directors will be assumed to have had earned the minimum wage whether they have or not.

I kinda like your flat tax idea, but I would have the PA set higher, perhaps at £15k

Leger · Master Book-keeper

abacus12345 wrote:
I don't offer tax planning.

The director can choose whichever way he so likes.

He signs the forms.

In my opinion everybody should pay NI. NI helps towards funding the greatest service in the world.

Directors who earn below minimum wage seldom stay directors for very long.

To add, I don't deal with LTD companies.

-- Edited by abacus12345 on Sunday 6th of March 2016 10:11:24 PM

Apologies, I gained the impression that you were wanting to specialise in that field,

All companies can go through a rough patch, or not have enough income at the start of their venture to take minimum wage.

abacus12345 · Guru

John

I do intent to.

At the moment I don't offer anything like planning. Pretty difficult to tax plan much around sole traders -

Sole traders who have no choice but to pay into the system, like the rest of the UK workforce. (Yes I know the self employed don't have it bad, at all!)

In future, yes I'll probably advise what everybody else advises - I still do think there should be a minimum NI payment from everybody who is able to pay.

Flat rate tax will never happen here, we are too much like a capitalist state...

Shamus · Forum Moderator & Expert

abacus12345 wrote:
Flat rate tax will never happen here, we are too much like a capitalist state...

Not sure what you mean John.

We are not like a capitalist state, we are a capitalist state.... You say that like capitalism is a bad thing?

Germany is a capitalist state. Germany is considering flat rate tax.

Flat rate tax is a capitalist idea in that the people who earn the money have a right to benefit from their labours rather than the state attempting to harness ambition.

I would go as far as to say that the accountancy profession and capitalism are intertwined. I do not see socialist ideals of wealth redistribution and public ownership sitting well with someone who chooses this as a profession.

Leger · Master Book-keeper

abacus12345 wrote:
Sole traders who have no choice but to pay into the system, like the rest of the UK workforce. (Yes I know the self employed don't have it bad, at all!)

In future, yes I'll probably advise what everybody else advises - I still do think there should be a minimum NI payment from everybody who is able to pay.

Flat rate tax will never happen here, we are too much like a capitalist state...

No choice? Of course they do, they can become a Ltd Co smile The gap is a lot narrower now, as the 7.5% tax removes that incentive to become a Ltd Company for purely for tax reasons.

Personally, like Shaun, I think NI should be abolished completely. It's not separated as far as I'm aware, and for years the Govts have been spending the days NI money that was intended for future pensions.

I'm sure you're right on the flat rate front, personally I would love to see capitalism abolished and replaced with a co-operative type system in place. John Lewis/Waitrose is a good example of this.