Taxcoding Notice

Taxcoding Notice

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Hi,

Question on taxcodes - I have numerous clients who run their own small Ltd company and pay themselves a low salary £7,072 with the remainder of their drawings by way of a dividend.

Last year one of the directors opted to have the income tax on his dividend paid via his taxcode for 2012/13. This has led to an updated taxcode which doesnt provide the full tax free allowance.

My question is do I have to use this updated taxcode for the director? If I do, then essentially I will have to operate a payroll for the company and pay over to HMRC a certain % of income tax each month.....this means from a client handling point of view it becomes more involved and makes the client less desirable.

Is there any way around it? Essentially it will all fall out in his 2012/13 tax return anyway....

Matt

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By taxhound
12th Mar 2012 14:49

If the client agrees

Ask HMRC to remove the item from his tax code.  I have had a few of these where HMRC have tried to code out large amounts of investment income and a quick call is usually all it takes to get it removed.

But you do have to use whatever code HMRC issue in the meanwhile.

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Tom McClelland
By TomMcClelland
12th Mar 2012 15:30

There is the option of quarterly payments too

Don't forget, for small clients where the payment to HMRC averages less than £1500/month the client has the option of paying HMRC the PAYE/NI quarterly rather than monthly. If the client sets HMRC up as a payee on their internet banking system with the accounts office reference this is only a very small extra amount of work. You just have to tell the client the amount to pay once a quarter.

Once HMRC are getting money there is also a small additional efficiency that results from paying the client up to the primary threshold rather than the secondary, which saves them about £15 in corporation tax/year because the employer's NI is less than the corporation tax and the director gets CT relief on the additional salary. Better in the client's pocket than the government's.

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