Payroll question | AccountingWEB

Payroll question

This is purely hypothetical!

So I have a person, I pay them £10 a month for the 1 hour's work they do me.  I would assume no PAYE scheme is needed as, frankly, no tax, no NIC.  But if I up their hours, at what point do I need a PAYE scheme?  When they hit the first NIC threshold?

As a side query, I up their pay to £30 a month, but I find out they have a large recurring taxable but untaxed source of income (a state pension say, for some reason it is £20,000) which makes their total income over the PA (but their pay under all the thresholds).  Is a PAYE scheme needed given tax should be being deducted from the employment?

I hope I haven't strayed too far from reality that my question is too complex, all I really want to know is, what triggers the need for a payroll?  HMRC seem intent on bombarding me with how to do it online, but not whether it needs doing in the first place.

Comments
Tonykelly's picture

when you have staff

Tonykelly | | Permalink

you need a PAYE scheme when you pay any staff, simple as that.

If you have a sole director not taking any salary or benefits, then you don't need a PAYE scheme.

Euan MacLennan's picture

PAYE scheme

Euan MacLennan | | Permalink

You only need a PAYE scheme when you have something that needs to be reported to HMRC, which means:

  • any employee paid over the NI Lower Earnings Limit (£102 a week or £5,304 a year in 2011/12), or
  • any employee who would have to say on a form P46 that they have another job or a pension.
SteveOH's picture

Hi dim

SteveOH | | Permalink

You don't necessarily need a Paye scheme. You only need to register as an employer with HMRC if:

  • they have another job
  • they receive a pension
  • their pay is at or above the Paye or NI Lower Earnings Limit threshold
  • they receive benefits

They should complete a P46 with one of the 3 statements signed. Depending on which statement they sign will determine what action you should take.

So, in your hypothetical circumstances, it doesn't matter whether you are paying them £10 or £30 per month or any other figure; it depends on the circumstances.

 

EDIT: Just beaten to it by the extremely knowledgeable Paye guru, Euan.

is it wise though?

carnmores | | Permalink

does it not mean that if a return is submitted , NI contributions will be credited to the individuals account

Tonykelly's picture

you need to bear in mind tax credits

Tonykelly | | Permalink

I am aware of the rules given above, which have been taken directly from HMRC website.

However, I still say it is best practice to register as an employer when you take on staff.

For example:

Please bear in mind that lower paid staff will normally be claiming tax credits.

On this basis, they will ask you for your PAYE reference.

Also when someone leaves at least you can give them their P45.

 

Euan MacLennan's picture

Second bite

Euan MacLennan | | Permalink

carnmores wrote:

is it wise though?

does it not mean that if a return is submitted , NI contributions will be credited to the individuals account

Is what wise?  You don't get credited with NI contributions if your earnings are less than the NI LEL.  If they are more, you must register for a PAYE scheme and submit an end of year PAYE return to obtain the NIC credits.

 

@Tonykelly

Best practice to volunteer for the rigours of PAYE compliance when you don't have to?  I really don't agree.  HMRC don't agree and I suspect that most accountants would not agree.  And you shouldn't issue a P45 if the employee is not subject to PAYE.

 

 

 

Tonykelly's picture

third bite

Tonykelly | | Permalink

Euan MacLennan wrote:

Best practice to volunteer for the rigours of PAYE compliance when you don't have to?  I really don't agree.  HMRC don't agree and I suspect that most accountants would not agree.  And you shouldn't issue a P45 if the employee is not subject to PAYE.

You are going to find you need to issue payslips to your staff. This is a legal requirement.

And as pointed out above, you will have a problem claiming tax credits if you don't have a PAYE reference.

As regards the rigours of PAYE compliance, I think these are not insurmountable if you have suitable software, eg Moneysoft payroll.

But if you choose not to run a PAYE scheme, that is your preference.

For the aforementioned reasons, I would register as an employer and subject myself to all the rigours that this entails.

Euan MacLennan wrote:

And you shouldn't issue a P45 if the employee is not subject to PAYE.

There is a legal requirement to issue a P45 in normal circumstances, ie employee subject to PAYE etc. However, although it is not mandatory if the employee is not subject to PAYE, it is certainly not wrong to issue a P45. In fact it is quite helpful to the employee when they are starting a new job elsewhere.

 

Constantly Confused's picture

Ta!

Constantly Confused | | Permalink

Thank you all, I apologise that this has started such a lively debate! 

So whilever a client company was paying below the NIC thresholds and the employee had no other income (I assume L&P, interest etc... don't count) or benefits there was no need for a payroll.

However on the employee drawing their SRP there was then a need for one, and I assume if HMRC notice this there will be penalties on their way... 

Any way to get out of this gracefully?  The client should have set up a payroll a few years ago...  No tax has been missed as the employee is on self assessment, and no NICs would have been due on such a low income (I underexagerate with the £10 a month, but it is still below the thresholds), will HMRC smack their wrists or throw the book at them (which I can then read as I clearly don't know enough payroll admin!).

Tonykelly's picture

There you go

Tonykelly | | Permalink

You've hit the nail on the head there. Prima facie, it appeared that no payroll was necessary.

However, at a later date it has been discovered that a PAYE scheme should have been set up.

The easy way out is not always the best way.

You may be able to appeal on the basis of the facts you have mentioned.

 

nigelburge's picture

Euan has it exactly right.

nigelburge | | Permalink

Constantly Confused wrote:

So whilever a client company was paying below the NIC thresholds and the employee had no other income (I assume L&P, interest etc... don't count) or benefits there was no need for a payroll.

The legal requirement to set up a PAYE scheme is triggered by a statutory requirement to report something to HMRC, whether that is PAYE/NIC due or whatever. 

As far as penalties are concerned, the normal ones apply as for PAYE BUT only if there was a legal requirement to set up a PAYE scheme in the first place. 

This subject is widely mis-understood even by HMRC themselves - but then, when did HMRC officers ever go back to the legislation?!

Tonykelly's picture

p46 box c

Tonykelly | | Permalink

nigelburge wrote:

The legal requirement to set up a PAYE scheme is triggered by a statutory requirement to report something to HMRC, whether that is PAYE/NIC due or whatever. 

As far as penalties are concerned, the normal ones apply as for PAYE BUT only if there was a legal requirement to set up a PAYE scheme in the first place. 

This subject is widely mis-understood even by HMRC themselves - but then, when did HMRC officers ever go back to the legislation?!

In this case the employee would have ticked box C on the P46 form, as they were receiving a state pension.

Tax at basic rate should then be deducted from the employee.

Unfortunately in order to do this you will need a PAYE scheme.

I don't think anyone is disputing the fact that you don't necessarily need a PAYE scheme if there is no PAYE/NIC due, and I am pretty sure that HMRC are aware of this also, without the need to refer to any legislation.

 

 

 

 

nigelburge's picture

Ummmmm......

nigelburge | | Permalink

Tonykelly wrote:

I don't think anyone is disputing the fact that you don't necessarily need a PAYE scheme if there is no PAYE/NIC due, and I am pretty sure that HMRC are aware of this also, without the need to refer to any legislation.

That was my point - it has been my personal experience on talking to quite senior HMRC "PAYE Experts" that they do NOT understand the legislation.

Most HMRC officers I have spoken to believe (wrongly) that if you take on an employee, you must register a PAYE scheme. When challenged to provide a legislative reference for this, they go strangely quiet.

As I said before, Euan had it right at the start when he said it is reportability that triggers the requirement to have a scheme, not just a payment liability.

Tonykelly's picture

I don't think you need to be a PAYE expert in this case

Tonykelly | | Permalink

Box C is ticked on the P46. Basic rate tax to be deducted. PAYE scheme required. End of story.

 

Constantly Confused's picture

Might be a moot point

Constantly Confused | | Permalink

Or I might be showing my ignorance, but why would the employee have a P46?  They haven't just started, they have worked there for years and years, but then hit pension age and this (I now see) should have created a payroll scheme.  At what point should a P46 have been filled in?

So basically no payroll has existed where a payroll should have been for a few years.  I'm sure HMRC will just roll their eyes when they hear about it and call me a silly goose (or duck as the case may be)... won't they?

<_<

>_>

Tonykelly's picture

P46 (Pen)

Tonykelly | | Permalink

The form P46 should be completed if the employee does not provide a P45.

In your case, the employee started years earlier, so the P46 would have been completed years earlier.

However, there is another form called a P46 (pen) to be completed when someone starts a pension.

Presumably, the employee/director completed a tax return and paid any additional tax due - assuming this was the case.

 

nigelburge wrote:

Euan has it exactly right.

I agree she is correct concerning setting up the PAYE scheme, but she is wrong when she tells me you shouldn't issue a P45 if the employee is not subject to PAYE.

P45

martin.jackson | | Permalink

Depends what you mean by "wrong".  There is no requirement to issue a P45  - Reg 36 of the Income Tax (PAYE Regulations 2003 refers.

cfield's picture

How can you issue a P45 when there is no PAYE scheme?

cfield | | Permalink

You have to put your PAYE reference on a P45, and as this form has to be filed on-line now, I don't see how you can submit one without it. That is the case whether a PAYE scheme should have been set up or not.

If no PAYE scheme is required (and the employee works more than 2 weeks) then the employee should sign a P46 and tick the relevant box but it should just be filed for future reference, not submitted to HMRC.

Payslips are irrelevant despite being legally required as they do not need to show PAYE refs (although most do as good practice).

Chris

Euan's the man!

lh3f9764bg1g | | Permalink

Euan hit the nail exactly on the head in the second reply to this topic.

 

  Chris.

PAYE

Timtaylor.tas | | Permalink

I would also recommend that you renew P46's on an annual basis, as I have had clients where the indivduals circumstances changed but they were left on the wrong tax code!  Safest way is always to set a scheme up and do it right from the start :)

RTI

Vince54 | | Permalink

RTI would appear to make this question irrelevant in future.  Taking HMRC's info on RTI at face value (a tad naive I admit) a RTI submission has to be made each time an employee is paid - it doesn't matter whether earnings are at the LEL, or tax / NI has been deducted.

This is supposed to resolve questions surrounding tax credits and the new Universal Credit (UC).  Without RTI, UC can't work.  October 2013, when it's supposed to be up and running will soon be here.

sole director not getting any salary

nadzaf112 | | Permalink

Can you please tell how sole director will submit his /her tax return will no salary and no dividend without PAYE scheme