There is a new director/employee joining the company on the 10/04/16. They will be paid £1817.23 gross per month (net 1500) I have set them up to do the normal NI calculations as they will be paid monthly.
My question is will the month end payroll deduct the tax so they are paid £1500 or will they be paid the £1817.23 less the NI because this is their first job. I don't want to set it all up until they actually start and all the payroll I currently do is below the limits for tax so I am not sure if they take it off straight away or only after they have used up their 11k allowance.
Your software will work the tax out depending on the tax code entered but assuming it is going to be code 1100L then the £11,000 personal allowance will be spread over the year, so each month the director will have £916.67 tax free (£11k/12), leaving the surplus £900.56 to have tax deducted (around £180). NI kicks in earlier as it has a lower threshold. Why are you not putting this person on 'director's NI?'
Thanks Rob. I am setting them up as director for NI but here are two options aren't there? I should have said the alternative method rather than normal as opposed to the standard.
The normal way for Directors is the 'annual accounting' which HMRC seem to prefer, I think the alternative method is where the NI is calculated like non directors and there is some kind of adjustment in month 12 (I can't really recall too much about this as I always put on the standard method). If the director is keen to have the NI deducted each month then maybe the alternative method is best. Perhaps play with the software without updating anything,or sending an FPS !)
If the client is wanting to pay him exactly £1500 nett then I would use nett to gross option in your software and set the Directors NI to monthly rather than the standard annual scheme.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
