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RTI and directors - can anyone spot a flaw in this plan?

I am a sole practitioner and within my client base there are 35 payrolls where only directors are on the payroll.  Currently I send out a monthly payslip, which has proved useful in the past as it means directors know exactly where they stand.  Nonetheless in the past 3 months 3 clients have informed me of some PAYE work they've had outside their limited companies.  In 2012-13, no problem - just re-jig the salaries.  But this would clearly not work in 2013-14 if submissions had already been made.

I want to keep my fees unchanged but feel going to just one payroll run in March 2014 is a bridge too far, also would cause problems for those clients who sail close to the wind on their loan accounts.  It seems that, as at present with "no PAYE due" submissions, we'll need to do something every quarter to keep the PAYE record alive.

So my plan is to run a payroll process - and send out a payslip - in week 11,24,37 and 50.  In other words, once a quarter halfway through the last month in the quarter.  As with everything I do, all clients will be informed about this in advance and offered the option to choose a different approach.

Please see if you can spot problems with this, all criticisms welcome.

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08th Feb 2013 11:52

Thinking along similar lines

For companies where there is only one director on the payroll (at the level where there is no tax or NIC), I am thinking of doing a single pay run in month 1 for a full year's salary, and crediting this to the directors loan.

That fits the bill that the rti filing is made before payment - to the loan account.  All subsequent payments aren't salary but loan repayments.

However, I'm not sure if we have to make submissions where there is nothing paid (as we do with subcontractors)  That would defeat the object of the exercise.  Finding out is one of the things on my list for February but if anybody does know, I'd be happy to learn

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By Triggle
08th Feb 2013 12:28

Mr Mischief's plan is OK I think? It at least gives time in which to decide the final salary based on a client's income from other sources (although it may be too late by then).

I think with Cloudcounter's approach this will lead to the salary declared in month 1 as, say, £7,000, being liable to Class 1 primary and secondary NIC as the threshold for each is set at a weekly rate not an annual rate. Month 1 will only have 4 weeks in it and therefore the threshold will be £149 x 4 = £596 for primary and £148 x 4 = £592 for secondary.

The salary of £7,000 all declared in month 1 would therefore attract class 1 primary contributions of £768.48 (£7,000 less £596 x 12%) and class 1 secondary contributions of £884.30 (£7,000 less £592 x 13.8%).

Or have I got hold of the wrong end of the stick?

 

 

 

 

 

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08th Feb 2013 13:17

Directors

@Triggle

Yes - you have got it wrong.  Directors, on which the question was based, have an annual earnings period for NIC, so it would be no problem to pay them in Week 1.  However, there is a problem with tax unless you subscribe to the rather esoteric argument that it is possible to have an annual pay period and therefore, that the full year's allowances would be available whether you pay them in Week1 or Week 52.

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Esoteric argument?

There's an indicator in the FPS for an annual earnings period?  Isn't the only problem that most software won't do it?

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By Taxboss
08th Feb 2013 13:34

RTI 0 income tax

Re Cloudcounters suggestion - have you considered the effective rate of income tax deducted on £7,000 in month1? Major exposure to 40%!

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By Triggle
08th Feb 2013 13:48

I am aware that directors are assessed to NIC with respect to the annual earnings period but thought this could only work if applied retrospectively.

Wouldn't there have to be another payment of salary in month 12 in order to trigger the refund of NICs under the annual earnings provisions or have I got the wrong end of the stick again?

I must put this stick down!

 

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08th Feb 2013 13:51

HIgher rate tax

Of course I've considered the effective rate of income tax.  Have you considered that for an employee with an annual pay period, you use the PAYE tables for month 12?  Zero exposure to higher rate, or even basic rate, tax.

And if you think that you can't have an annual pay period, have a look at the Employers Further Guide to PAYE CWG2, page 7 and 8.

The main issue seems to be that our payroll software (Moneysoft) doesn't appear to offer annual pay periods, and nor do a couple of others that I've briefly looked at.  And even if I can find one, if I have to make a nil filing every month, there's little saved

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Annual earnings period and multi-nil-EPS

Cloudcounter wrote:

Of course I've considered the effective rate of income tax.  Have you considered that for an employee with an annual pay period, you use the PAYE tables for month 12?  Zero exposure to higher rate, or even basic rate, tax.

And if you think that you can't have an annual pay period, have a look at the Employers Further Guide to PAYE CWG2, page 7 and 8.

The main issue seems to be that our payroll software (Moneysoft) doesn't appear to offer annual pay periods, and nor do a couple of others that I've briefly looked at.  And even if I can find one, if I have to make a nil filing every month, there's little saved

 

12Pay has annual, 6 monthly, and quarterly earnings periods if you purchase a bureau licence. Which means that director's spouse can also be handled with a single payment even if they're not a director.

You still have to file nil EPS every month though there is an option in EPS to file advance notification of multiple nil periods. The problem is that HMRC's specification of multi-nil-periods is slightly broken and can lead to confusion.

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08th Feb 2013 13:53

To Triggle

"Wouldn't there have to be another payment of salary in month 12 in order to trigger the refund of NICs under the annual earnings provisions or have I got the wrong end of the stick again?"

No to the first part of the question and yes to the second

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By neileg
08th Feb 2013 13:56

Annual earnings period

When I were a lad we did payroll on blue cards with a pencil. This meant you really had to understand the rules. With software you are sheltered from the hard facts!

When you pay a director you are supposed to add up all earnings to date in the tax year and compare this with the annual threshold for NI. Therefore it doesn't matter if it's week 1 or 52.

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08th Feb 2013 15:50

OK! Maybe not esoteric!

@George

I was just trying to use a fancy word to confuse the hoi polloi!  Didn't work!

@Cloudcounter

CWG page 7 says that if the employee is a director, operate PAYE on the earlier of:

when you actually make the paymentwhen the director becomes entitled to be paidwhen the payment is credited in the company's recordswhen the remuneration is fixed or determined, but if the amount for a particular accounting period is determined before the end of that period, take the date as being when the period ends.

So, if you credit a year's pay to his loan account in Month 1 (to avoid an overdrawn DLA), you must operate PAYE tax in Month 1, which would result in a significant tax charge.  Your only basis for treating it as an annual pay period must be that you "fix" his remuneration for the tax year early in April before crediting it to him.  Is that what you are saying?

However, I do agree that Moneysoft does not allow annual pay periods or even, quarterly ones, which would scupper Mr Mischief's original proposal.

 

 

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09th Feb 2013 04:47

WRT Moneysoft

With respect to both this:

Cloudcounter wrote:
The main issue seems to be that our payroll software (Moneysoft) doesn't appear to offer annual pay periods

...and this:

Euan MacLennan wrote:
However, I do agree that Moneysoft does not allow annual pay periods or even, quarterly ones, which would scupper Mr Mischief's original proposal.

Why don't you raise it with Richard Carey from Moneysoft who is a frequent contributor on AccountingWeb in relation to their software.

You can PM him here:

http://www.accountingweb.co.uk/messages/new/192284

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10th Feb 2013 12:14

Tried

frustratedwithhmrc wrote:

With respect to both this:

Cloudcounter wrote:
The main issue seems to be that our payroll software (Moneysoft) doesn't appear to offer annual pay periods

...and this:

Euan MacLennan wrote:
However, I do agree that Moneysoft does not allow annual pay periods or even, quarterly ones, which would scupper Mr Mischief's original proposal.

Why don't you raise it with Richard Carey from Moneysoft who is a frequent contributor on AccountingWeb in relation to their software.

You can PM him here:

http://www.accountingweb.co.uk/messages/new/192284

I've actually asked Moneysoft to allow an annual/quarterly pay period, and the response was: (1) it would require a major rewrite of software, and (2) the only people who would generally be on an annual pay period are generally directors, and since NI is anyway on an annual basis, you can just bung the whole lot into month 12.

 

However, this was pre-RTI, so maybe we can convince them.

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10th Feb 2013 18:11

That's what I am saying

Euan MacLennan wrote:

@Cloudcounter

CWG page 7 says that if the employee is a director, operate PAYE on the earlier of:

when you actually make the paymentwhen the director becomes entitled to be paidwhen the payment is credited in the company's recordswhen the remuneration is fixed or determined, but if the amount for a particular accounting period is determined before the end of that period, take the date as being when the period ends.

So, if you credit a year's pay to his loan account in Month 1 (to avoid an overdrawn DLA), you must operate PAYE tax in Month 1, which would result in a significant tax charge.  Your only basis for treating it as an annual pay period must be that you "fix" his remuneration for the tax year early in April before crediting it to him.  Is that what you are saying?

 

Yes, that's exactly what I'm saying.  With a director on the basic £620 -624 a month we know what the pay for the year is going to be, we pay it in one go and we therefore use an annual pay period.  The fact that the cash doesn't have to be withdrawn in one go is clearly in lines with the criteria that you've quoted.

It works fine in theorey, but is going to be impractical to operate because the software doesn't cater for it, even if you don't have to file nil monthly returns.

RTI is going to push up the amount of work on single director payrolls.  At the moment we can run 12 payrolls in one go, send the payslips to the client and only have to notify HMRC once a quarter that there's nothng to pay, then file the P35 post year end - probably when we do next year's payslips.

Instead we are going to have to open the file 12 times, and make 12 submissions to HMRC.  Quite apart from the additional work, that's 11 more deadlines that bring risk of being missed.

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08th Feb 2013 16:59

to clarify

To clarify my plan, if it were 2012-13 then my payroll runs would be as follows:

month 1 nowt

month 2 nowt

month 3 1,872 no tax and no NI so 1,872 net

month 4 and 5 - nowt

month 6 1,872 no tax and no NI so 1,872 net again

etc...

So I'd still be using monthly payroll functionality but only running it every third month.

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If you're paying people quarterly...

... you should use a quarterly earnings period.

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08th Feb 2013 17:58

why?

Why?  Is this a legal requirement?  If so, what legislation please?

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13th Feb 2013 12:38

BACS Reference?

At Clear Books we have an annual payroll option available for all employees and directors on our RTI ready Open Payroll app. A bureau option is now available.

Several of our accountant partners have indicated an intention to run an annual payroll in April 2013 and credit this to the director's loan account for one man band companies. This would then be drawn down over the course of the year.

I would be interested to know whether an RTI  BACS reference is required on the bank payment when a director draws down on a loan account to which his / her salary had been credited.

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annual basis payroll

I brought this point up at a recent HMRC seminar on RTI, the spokesman said there would be a means of putting a scheme onto an annual basis for this kind of situation in the same way as used to be the case under the previous regime though he was unable to elaborate on the mechanics. We will I suppose have to wait for the dust to clear in april to get a better idea, not a very satisfactory state of affairs in my opinion.

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13th Feb 2013 13:38

Plan A

Overall I think I will stick with Plan A:

1.  Set the directors up as directors in the software.

2.  Payroll option monthly.

3.  Month 1 and two 0, month 3 1,872 or its equivalent.

4.  File RTI in months 3,6,9 and 12 and send payslips out to directors at this time.

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13th Feb 2013 14:27

Plan B

Assuming that you are talking about payrolls with no PAYE due:

Buy Moneysoft, if you don't already use it.At the start of 2013/14, set up your 35 separate payrolls with monthly payments for the directors and others - you only have to enter the amount of £640 or £641 once for April and then just click a button to copy it to all the next 11 months.Add the payroll to the list for batch RTI processing.Run the RTI batch process monthly.

You don't need to run any of the payrolls individually for any month unless you particularly want to produce a payslip, which is not necessary if there are no PAYE deductions.

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14th Feb 2013 11:03

And even if nothing is paid to the director in a particular month you still need to do a "Nil Return" for that employer - which involves logging in etc.  You might as well pay monthly

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14th Feb 2013 13:10

Plan B looks good to me

I currently use Able Internet and have had no problems with it in 4 years of using it.  I have asked them if the funtionality in Euan's post will be available.  If not I'll probably bite the bullet and move to Moneysoft.

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14th Feb 2013 15:23

update

Able can cope with the copying and pasting.  I should have known that anyway, at least I've learned something today!

But they also say:

"You would have to set up each "Client" separately and submit each RTI return separately for each PAYE.
This is HMRC's requirement. They will not allow bulk submissions of multiple PAYEs."

 

This is potentially a real pain.  For example, it can take up to 10 minutes for the database to accept a P45 at present, and that's without millions of other people trying to submit at once.  In addition, the odd one does not properly submit.

No problem, no legal requirement to submit in a given number of days, pick up the P45s which bounced last month and re-submit in this month's.  But this could be a big problem in RTI.

So does anyone know how these bulk submissions work?
 

 

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14th Feb 2013 15:53

P45s under RTI?

You don't submit any P45s under RTI, so there can be no delay and no re-submissions.

Am I missing your point?

I think Able may be telling porkies or perhaps, you have misunderstood them.  If Moneysoft can submit multiple payroll RTI submissions in a batch, it is obviously not banned by HMRC.  I don't know how Moneysoft does it, nor do I care just so long as they can do it.  My guess would be that the batch process automatically opens the first payroll on the list, automatically sends the RTI submission for that payroll, automatically closes that payroll file, automatically opens the next one and so on until the RTI submissions for all the payrolls on the list have been sent - separate individual submissions, but part of a bulk process.

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22nd Feb 2013 14:38

P45's are still submitted to HMRC under RTI

They go in with your online submission. You still enter them into the system else how do you get tax codes for new starters? The change here is that you don't need to submit them seperately. This shouldn't affect multi batch submissions.

 

Hopefully HMRC have new goblins to process and accept returns for RTI, they are turning their servers off for a major update prior to April 6th so I expect it will be (in the long term) Easier to submit online info to HMRC

 

@ShayaClearBooks The bacs ref is a requirement for the payment made to HMRC, it matches a tag in the submission of the RTI information when submitted. No ref is currently needed when paying employees.

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