All of directors salary paid in M1 - will penalties occur for "unpaid" tax?

All of directors salary paid in M1 - will...

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A Ltd Co's year end is April. In the financial year to March no personal allowance was available. The Ltd's profit for the year could do with reducing by the 2011-12 personal allowance.

If £7000 is paid in M1 (April), it will result in a tax bill. Then in months 2-12, a tax refund will accrue, so by M12, the tax liability will be nil.

Does the company have to pay the net bill for months 1-3 next week? Even though we know they will get refunds for the rest of the year? Logic says, as we know they won't owe anything on the P35, it makes sense to just pay nothing and keep schtum. However, under the new penalty regime, arguably HMRC can assess penalties for month 1 (less 2 and 3) paid late.

What would you do?

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Euan's picture
By Euan MacLennan
11th Jul 2011 14:29

Accrued salary

You could accrue a bonus or salary of £7,000 in the accounts to 30th April, which would be effective as a deduction for corporation tax provided that it is actually paid within 9 months, i.e; by 31st January.  OK - some tax will be payable in January, but you can pay PAYE quarterly.  So, pay him another £10 in March to get him the tax refund (total gross and net pay of £7,010 in the year) and to reduce the company's PAYE liability to nil for the quarter (and for the year).

Don't forget to notify nil PAYE payments each quarter.

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By Monsoon
11th Jul 2011 14:40

Thanks Euan

You can tell it's Monday: that ought to have been obvious. Merci! :D

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David Winch
By David Winch
11th Jul 2011 17:38

Penalty?

Monsoon

Even if the salary was paid in April 2011 I think you are suggesting that if the PAYE was not paid then in the year 2011-12 only 1 month's PAYE would be paid late.

I don't think a penalty is chargeable if, in the year, only 1 month's PAYE payment is late.

(On that subject, if the Class 1A NIC due by 19 July is paid late does that count as another month's late PAYE payment for the purposes of penalty calculations for the year for which the liability arises?)

David

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Image is of a pin up style woman in a red dress with some of her skirt caught in the filing cabinet. She looks surprised.
By Monsoon
12th Jul 2011 10:22

Good point!

It was definitely Monday yesterday! David, I think you're quite right, well noticed. :)

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