Have a new client (one man limited company) in its second year of trading as a limited company (march 2010 year end). Has not yet registered for PAYE (salary below NI and Tax threshold) but does reimburse expenses to director. So looks like we will need to register for PAYE (submit nil returns) and complete and file P11d (although hopefully will get a dispensation) so again a nil return.
What responsibility would I have for the prior year (previous adviser)? am concerned that a can of worms may be opened with potential P11d needed for last year ie hefty penalties for late P11d (even if nil). Am i worrying unnecessarily? Would appreciate some comments?
thanks
Fred
Related resources
Replies (16)
Please login or register to join the discussion.
No PAYE scheme but P11d may be needed
Get it right from now on. There is no point in compounding the problem by letting it continue. Also, it is most unlikely that HMRC will look back into previous years. To safeguard the clients future state pension provision, you should`pay him a salary up to at least the NI threshold and report it on the annual P35 (unless he has other earnings to cover this)
Directors P11D
The "note to employer" on form P11D states that P11D should be completed for a director or employee earning at a rate of £8500 a year or more to 5 April.
If the director earns less than this (including expenses and benefits) then completion and submission of P11D is not required.
However, if the benefits and wages exceed that figure then completion and submission of the P11D will be required!
thanks
Cheers for the replies -
PAYE registration in progress...hopefully dispensation will follow to alleviate admin pain!
Anon - unfortunately exemption for directors earning less than £8,500 only applies if a full-time working director with no material interest in the company. There is also a charity exemption but neither is applicable in my case.
Fred
You may want a PAYE scheme
I would think about paying a salary of £100 per week to ensure that you are entitled to basic state benefits. Then apply for a PAYE dispensation, you can do this online for expenses and this should preclude the need for a P11D.
Look back on Any Answers for a previous posting where I discussed the problem about not filing P11Ds for earlier years (I will try and add a link when I find it).
Virtual Tax assistance for accountants, check out: www.rossmartin.co.uk
Is a dispensation worth it?
I have considered applying for dispensations on the grounds that I check all my clients' expenses, but I do not really want the responsibility for doing that checking unless I am getting paid for it, and the chances of my persuading the client that (s)he should pay for it are sufficiently close to zero for me not to bother trying.
a director or employee earning at a rate of £8500 a year
I have had a person at HMRC explain to me that the term "a director or employee earning at a rate of £8500 a year"
means a P11D should be submitted by a) a director & b) an employee earning at a rate of £8500 per annum, not "a director earning over £8500 or an employee earning over £8500 -
and that all directors should submit a P11D even if it's nil
any comments
Re Jean Reeve
I had always thought it the way that HMRC explained to you - given that a director can manipulate their own remuneration. Not very many of my directors earn more than £8,500, but I haven't for one minute tried to treat them the same as an employee earning less than £8,500.
Also, to answer the questions about dispensations being worth it - I think so. About this time of year, I send out the P11DX and a word document explaining it to new clients gained in the year, ask them to complete, send to HMRC, and (usually) receive a dispensation backdated to the beginning of the tax year.
Dispensations
You still get some tax offices being awkward about granting dispensations to one-person companies, despite the fact that officially they are OK. And quite often they exclude business entertaining on the rather silly grounds that no one else can check them (same goes for travel & sub too) so you might still have to file a P11D.
Another thing to watch for is clients claiming expenses for ineligible items such as home telephone, travel to work, petrol rather than mileage, annual travelcards, regular and lavish "staff" entertainment, mobile phone contracts not in the name of the company, etc. These should all be P11D (or PSA) items and a dispensation could lead to penalties for unreported taxable benefits.
Overdrawn loan accounts are another danger area. Always make sure there is an internal adjustment for interest at the official rate (currently 4.75%).
Chris F
You might find this useful!
You can as an acountant offer the service to your clients with no upfront costs works well.
just a thought hope it helps!!!
PAYE and P11d
Is there any point in paying NIC if a client has already got 30+ years national insurance record
Directors & benefits
If you have not read HMRC's 480 booklet then I would suggest putting the phrase in a search engine or on HMRC's website.
The conditions for the submission of a P11D rather than a P9 are in chapter 1, i.e. controlling directors are always treated as requiring a P11D (if benefits are paid) irrespective of earnings below or above £8,500. Also if the spouse has a company car without taking a wage the benefit can be assessed on the director even if both of them earn less than £8,500.
The booklet also contains a chapter on dispensations however HMRC are still wary of granting a dispensation for one man bands. However, unless you try you will not know.
However, to answer your question re earlier year P11D. A P11D was due however so was a S336 claim - if you are happy that all expenses are met by the S336 claim then no tax or Class 1A NIC loss therefore HMRC have nothing to apply a tax geared penalty, i.e. ignore earlier years and get it right from now on
Remember the second state pension
If earnings are above the LEL (currently £97/week) the employee qualifies for the second state pension, which is currently worth £1.60/week, index linked, for every year where earnings are above the LEL.
So it's definately worth doing - after retirement a director could easily live for 20 years more, making the benefit £1,664, in todays money, for each year that you do this.
No PAYE but P11D
You have to submit P11D and forget about the former adviser. Failure will continue building up unnecessary penalties. HMRC may not even lod beyond current P11D.
Solution
Having previously worked for HMRC, setting up companies and agents clients for PAYE, I can safely tell you that if you can please understand what I am about to say....IF you were to register the business for a previous tax year, you would have penalties for late submission of P35 and P11Ds including all the calculations and returns to submit along with payments.
IF you were to be sensible and set up the business for PAYE for this year, there would not be any hassle at all. When you register for PAYE they ask you 1. Will the company be paying someone at £97 per week or more (LEL for NIC) and will they be paying someone with-in the next 4 weeks. These do not apply in this case because there is expenses there, just tell them that and they will by pass it. When they ask you for the first date of payment you should give them a date of the first payment in this tax year. If you make it last year, you are going to be hit with all sorts of penalties and return notices to complete along with a heavy payment to make.
Really hope this helps.
Liam
Why p11d?
When employer is just reimbursing business expenses to employee who has paid for those expenses on employers behalf..... No p11d is required..... What we are talking about here? Hmrc 480 section 307?
Classic Error
This is a classic mistake Anon,
Lets hope you have not relied on this in the past!!!