Hi
I am an accounting student and director of a small limited company with only one part time employee other than me. I have two questions:
- If there is an existing PAYE/Employer registration, but the wages do not reach LEL, is it still necessary to file all the returns? Will there be penalties if returns are not filed through RTI from April 2014?
- Can director still be paid lumpsum once a year? The company's year end is in August and I would like to pay myself £10K as a director to minimise tax before that. This would of course reach LEL and I will have to file the returns from thereon. However, my accountant told me that it is no longer allowed by HMRC since the start of this tax year. Is this true because I could not find any restrictions on HMRC website regarding this.
My apologies if these questions sound too dumb and simple, but my knowledge in PAYE is very limited. Thanks everyone!
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Hi John
A lumpsum payment of £10K for director once a year instead of monthly or weekly salary.
As the company year end is in August 2014 and it is profitable so far, I would like to take £10K (single payment) as director's remuneration before end of year. According to my accountant, this single payment of £10K as director's remuneration is not allowed since the start of this tax year and has to be divided in monthly or weekly payments.
Yes...
... the accountant is definitely taking nonsense. An annual earnings period is a definite pissibolity.
Thanks John, I believe so too.
I remember him telling me a couple of months ago that best way would be taking all the profits through dividends because they will be "tax free" and no salary is necessary. But when I did the calculation myself, I was saving around £1,500 even with both employer's/employee's NIC paid out of my pocket and insisted on salary of £10K in tax year 14/15.. and now this!
Can you please help me with PAYE dilemma as well if possible? I registered as an employer a few months ago but all the payments made were well below LEL to one part time employee, no tax or NIC is payable but nothing has been filed as of yet either. I know, not too smart of a move but accountant did not advise me not to register till I reach PAYE threshold and had me registered as employer anyway. Will I be subject to penalties if I start filing RTI now? Being a small limited company with one employee, I have the option of postponing RTI payment till next year or even till 2016.
Your accountant may not be talking nonsense
... except that it applied from the start of the previous tax year, rather than this tax year. To answer your questions:
If no-one is ever paid at or above the NI LEL and did not have another job, you wouldn't need a PAYE scheme in the first place and would not then be concerned with RTI, but if a PAYE scheme is in existence, you must submit an FPS report under RTI on or before each payment of wages, even if below the LEL, or a nil report each month if no wages have been paid in that month. Failure to file at least one report in a month will attract penalties from when they are introduced in October 2014.it is quite possible for an individual to be paid only once a year and for his tax on that one payment to be calculated on his allowances for the whole year. However, your accountant may have been talking about Annual Schemes, which are the only way of avoiding having to submit an RTI report for every month of the year (you submit one for the month in which the annual payment is made, but not for any other month). To qualify for an Annual Scheme, you have to pay all your employees only once a year and in the same month, so if your part-time employee expects to be paid monthly, you do not qualify for an Annual Scheme, which means that RTI report must be filed at least monthly throughout the tax year.
Euan, thanks for the detailed answer, much appreciated!
- Yes, that should be the way to do it. My part time employee has no other job and has not been paid above LEL so far, so my company was not supposed to register in first place. However, what's done is done now, and it was registered in the last quarter of tax year 13/14. Will I able to postpone RTI submission till 2016 in this case?
If not, will I still attract penalties if all submissions are up to date by October 2014?
- No, it's definitely not annual scheme. The payroll will run normally for the employee and only I will be paid a single payment of £10K. I do not plan to take another payment through payroll till next tax year
.
Many thanks for your answers everyone, I will definitely be looking for a new accountant as soon as possible but let this one handle all the accounts till YE in August 2014. I just want to minimise any PAYE penalties even if I have to pay them, lesson learned!
Anyone?
Or calling HMRC is my only option now?
My accountant says that we should proceed with RTI filing and there will be no penalties, but of course I cannot take that at face value after his other suggestions and dealings with payroll up to now.
I can have PAYE automatically expire (already received a notice for not filing any PAYE returns) but this might raise red flags. And I will have to register again for my £10K payment anyway. Or I can have PAYE scheme expire and only take £7,956 this year so no registration is necessary this year. I cannot see my employee reaching LEL anytime soon even with NMW increase.
I am sorry if this is too much to ask on a free forum, just looking for optimal course of action.
Once again
Will I able to postpone RTI submission till 2016 in this case?
No - I have already told you that you must file an RTI return at least every month.
If not, will I still attract penalties if all submissions are up to date by October 2014?
No
My accountant says that we should proceed with RTI filing and there will be no penalties, but of course I cannot take that at face value after his other suggestions and dealings with payroll up to now.
You should believe him as he is absolutely right.
I can have PAYE automatically expire (already received a notice for not filing any PAYE returns) but this might raise red flags. And I will have to register again for my £10K payment anyway. Or I can have PAYE scheme expire and only take £7,956 this year so no registration is necessary this year.
PAYE schemes do not expire automatically. They do not go away if you ignore the non-filing notices.
Thank you very much again, I will then proceed with RTI filing as suggested so everything is in order from now on and keep a close eye on PAYE as well.
I will also let him know that there seems to be no problem with a single annual payment of £10K for me as the director.
Thanks everyone for their input!
Automatic cancellation of PAYE schemes
If only it really happened in real life:
http://www.hmrc.gov.uk/news/cancel-paye-scheme.htm
From 28 October 2013 HM Revenue & Customs (HMRC) will be issuing letters (RTI206) to employers to advise that, because our records indicate that they have not operated PAYE or paid any subcontractors, we have automatically closed the PAYE scheme due to inactivity.
The letters are generated following an automated review of our records. The benefit of this approach is that:
HMRC identify that no returns are due at a much earlier pointit removes the obligation to make real time submissions and subsequent requests for both returns and paymentit removes an unnecessary burden on employers and the additional cost to HMRC of maintaining and administrating their record on our systems
For more information on the criteria HMRC apply for closing a scheme please see guidance on 'Automatic cancellation of a PAYE Scheme'.
@DMGBus
Yes, that's the one I am talking about, I did receive a notice last week advising me of the same situation as mentioned above with automatic cancellation after 120 days. Relatively a new regulation I think, did not know that it was recently implemented.
No salary necessary
Out of interest, I assume that you're not receiving any salary elsewhere? Because that would (depending on the level of it) make the accountant right about taking all dividends here...
Hmm...
Not filed my 13/14 self assessment yet, but there will be some income. I was self employed from April-August (profits should be below tax free threshold) and incorporated in August after buying/investing in new venture(s). That is also one of the reason I have not taken any salary from the company last year. No PAYE for 13/14 either.