RTI troublespots: Low paid directors

One of the most frequently asked questions about RTI on AccountingWEB is what will happen under the new system to small companies that only have directors with no PAYE/NI to pay,  but who receive a small monthly salary.

“Are they really going to have to submit their payroll every month under RTI,” asked Carol@ciaccountancy in November.

In reply, 12Pay’s Tom McClelland came up with a succinct summary of the situation: “If the company has no employees above the LEL in any week, *and* P46s are held for all employees with boxes ‘A’ or ‘B’ ticked (ie you have a declaration from them that this is their only job), then you don't need a PAYE scheme.

“The moment a single employee exceeds the LEL in any week, or a single employee ticks box ‘C’ on their P46 or refuses to tick any of the P46 boxes, you must have a PAYE scheme and report all employees, regardless of pay levels, to HMRC. This is already the case.

“From April 2013 the reporting will be a full payment submission (FPS) for everyone on every payment if the employer has a PAYE scheme. You won't need to think about the status of employees once you've got a PAYE scheme; just pay them all the same way, and (I guess) whatever payroll solution you use will file them all.”

Since then, similar questions have continued to roll in. To try and bring calm to the situation, this “RTI troublespots” article examines the practicalities for directors under RTI and addresses some of the points raised so far.

More RTI resources

Rebecca Benneyworth is lecturing throughout February and March on ‘RTI and other PAYE issues’ as part of the Tolley CPD Seminars programme. Further articles will follow based on troublespots raised at her talks and on AccountingWEB’s Any Answers page.

Continued...

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memyself-eye's picture

Thankyou    2 thanks

memyself-eye | | Permalink

That's the most succinct explanation yet!

JAADAMS's picture

Directors having an annual basis...

JAADAMS | | Permalink

 As Rebecca states there has been a number of comments/questions on RTI and  payment of directors has been one of the questions most asked.

In the last HMRC webinar the question was asked about the paying of directors with the minimum salary etc etc.

Quote HMRC presenter... 'nothing has changed' - directors can still have an annual basis.

 

frustratedwithhmrc's picture

Thanks Rebecca    2 thanks

frustratedwithhmrc | | Permalink

A good summary of the RTI position as it stands with regard to directors, most appreciated.

JAADAMS wrote:
Quote HMRC presenter... 'nothing has changed' - directors can still have an annual basis.

For those whose payroll software supports annual payments, not all do.

There is also this issue of HMRC closing down PAYE schemes which they deem inactive after 3-months or so. It should not be up to HMRC to determine if a firms PAYE scheme should be closed down or not, in these recessionary times there may be very good justification for not paying company directors until a firm is running a genuine profit. It should be up to the firms directors to decide, not HMRC.

RTI- low paid directors

Martin B | | Permalink

Falgging

adrianstone's picture

great summary

adrianstone | | Permalink

Many thanks Rebecca

mr. mischief's picture

Post of the year so far!

mr. mischief | | Permalink

Excellent post.  Better still the plan I communicated to all client directors last week of quarterly submissions works. Phew!

Thank you    4 thanks

wblewis | | Permalink

A great summary, however it highlights some failings of HMRC:

1. A lack of forethought in introducing the legislation without recognising and addressing the problems caused to a significant number of PAYE schemes. Weren't small businesses promised less red-tape.

2. Their ridiculous contention that there will be no more work involved for taxpayers and their agents.

3. The assumption that all businesses have access to adequate internet speeds (my office is less than 60 miles from the centre of London and I get 1Mb at best).

Frankly I am getting out of payroll processing as I expect a total disaster. My logic is that after more than 2 years HMRC are only now getting CIS processing sorted. RTI is a much bigger problem.

 

Good luck everybody!

 

Rti

MINSTERBUSINESS | | Permalink

 

Nice to see that someone understands it all , thank you Rebecca

Low paid directors

Andrew Lee | | Permalink

Nearly all our limited company client directors are paid the basic £620 per month and in order to minimise our processing cost we have tended to prepare three month's payroll quarterly in advance.  This also minimises the need to re-run when companies suddenly cease unexpectedly.

I have spoken to both Sage and HMRC to see if we can submit RTI reports up to three months in advance i.e. "on or before payment is made" and neither could answer my question.  Sage referred me to HMRC and the officer I spoke to, having asked around the office, said that no-one knew and also that they were not encouraging employers to submit data too far in advance in case it turns out to be incorrect or needs to be changed.

We have therefore adopted a wait and see position in the hope this will soon become clearer.  There will be a financial impact if we have to process all our payrolls every month, but not if we can still run three months in advance.

 

 

patricia caputo's picture

Annual reporting a problem?    1 thanks

patricia caputo | | Permalink

 

There may well be a lot of questions raised re annual reporting - however I have seen none with the issue that I have.

I have a few publicans who have the full time staff on the (weekly) payroll and others who may only work one shift a week who have completed a P46 stating that this is their "Only or main job" and who, at present, are not on the payroll run. They are paid at the end of their shifts.

Under RTI these employees will have to be on the payroll and a daily FPS made!  No submission can be made in advance in case the employees do not turn up for their shift and yes, I know that I will be able to adjust on the next submission but can you imagine the chaos?

I have told the clients that I am unable to run a daily FPS which means that the employees will all have to call in for their wages (say) at the weekend.  I suspect that the employees will not think that it will be worth their while and my clients will lose their staff.

Directors' spouse and low wage?

janet.gee | | Permalink

Rebecca, Thankyou for that very understandable summary. You make it seem so straightforward! And it is very timely - only this morning  our PAYE department raised the issue mentioned about National Minimum Wage and Directors. We had come to the same conclusion , ie that for directors , National Minimum Wage is not a concern.

However, we do have companies where the Director's spouse/ partner is also a shareholder along with the Director and receives  remuneration by means of a salary/ dividend package in the same way as the Director. Both of them receive a low salary, just enough to pay minimal NI and protect their contribution records. The balance of their remuneration is received as a dividend.

How does NMW apply to these non- Directors

There are reaons why the spouse/ partner is not a Director ( that solution would be too easy!)

The relevant salary figure for the 2013/14 year will be £7848 pa ( £150.92 p week) which results in paying about £1 NI.

This salary on it's own , if they are working over about 24 hours per week  , is below NMW rates. Is therefore ticking the '16 - 29.99'  box about hours worked going to lead to problems? Should we increase the salary component of their remuneration package?

Perhaps we should have realised this issue before, but with these small family companies employing only the spouses, it is not something we became too concerned about ( possibly incorrectly) But, better late than never! 

Is there any other solution or even better, are we mis-reading the regulations?

With thanks

Janet Gee

 

Ermintrude's picture

NI Credits    1 thanks

Ermintrude | | Permalink

Isn't it the case though, that unless the employer has a registered PAYE scheme, there will be no NI credits?

Just a Warning

Peter Tucker | | Permalink

It is critical that if one has to file under RTI, every care is taken to ensure that the date the file is forwarded to HMRC is carefully thought through, since HMRC have not taken account of early or late payment and therefore may well attribute the PAYE payments to the wrong month, triggering a "where's the money" correspondence when in fact all is in order but HMRC have not posted the correct file to the correct month.

P11D's

tkingston | | Permalink

Won't you still need a PAYE scheme if, although the director's pay is below the LEL and he has no tax to pay, he has to complete a P11D, because that requires a PAYE scheme reference?

Why would a Director's account be in debit?

norstar | | Permalink

Surely by timing of dividends on paper, it would never need to be in debit and thus avoid the problem of "payments in advance"?

What nonsense. HMRC's computer is going to fall on its backside given that it can't process a nil P35 within three months already!

Euan MacLennan's picture

Concession for daily paid employees    1 thanks

Euan MacLennan | | Permalink

patricia caputo wrote:

I have a few publicans who have the full time staff on the (weekly) payroll and others who may only work one shift a week who have completed a P46 stating that this is their "Only or main job" and who, at present, are not on the payroll run. They are paid at the end of their shifts.

Under RTI these employees will have to be on the payroll and a daily FPS made!  No submission can be made in advance in case the employees do not turn up for their shift and yes, I know that I will be able to adjust on the next submission but can you imagine the chaos?

I have told the clients that I am unable to run a daily FPS which means that the employees will all have to call in for their wages (say) at the weekend.  I suspect that the employees will not think that it will be worth their while and my clients will lose their staff.

Rebecca told us on a course yesterday that there is a concession - or "easement" as she put it - where all the following conditions apply:

  • staff are paid daily for work done on that day, and
  • they are paid by cash or cheque (not electronically), and
  • payment is made at a time (11:30 p.m. for bar staff?) or place (at the field gate for crop pickers?) where it would be impractical to make an RTI submission on or before the payment, and
  • the employer cannot know how much the payment will be in advance.

In these circumstances, the "on or before" rule is relaxed to allow the RTI submission to be made up to 7 days later.  A pity that it is not relaxed to the end of the month, but every little helps, I suppose.

Publicans not a problem    1 thanks

Cloudcounter | | Permalink

patricia caputo wrote:

 

There may well be a lot of questions raised re annual reporting - however I have seen none with the issue that I have.

I have a few publicans who have the full time staff on the (weekly) payroll and others who may only work one shift a week who have completed a P46 stating that this is their "Only or main job" and who, at present, are not on the payroll run. They are paid at the end of their shifts.

Under RTI these employees will have to be on the payroll and a daily FPS made!  No submission can be made in advance in case the employees do not turn up for their shift and yes, I know that I will be able to adjust on the next submission but can you imagine the chaos?

I have told the clients that I am unable to run a daily FPS which means that the employees will all have to call in for their wages (say) at the weekend.  I suspect that the employees will not think that it will be worth their while and my clients will lose their staff.

 

There are some cases where HMRC waive the need to report on or before the day of payment.

The document is available to download at this link  and includes payments which vary according to work done on the day where it is impractical to report on or before.  Catering workers are a specific example, and bar workers would fall into the same category

P11D only schemes

Mister E | | Permalink

tkingston wrote:

Won't you still need a PAYE scheme if, although the director's pay is below the LEL and he has no tax to pay, he has to complete a P11D, because that requires a PAYE scheme reference?

 

On a recent HMRC RTI presentation I attended we were told that they would have to file a nil FPS each month, or at least file a nil FPS in April 2013 and indicate there will be no further reports under RTI for 6 months (which I think is the maximum time you can advise HMRC that there are no reports).  Then every 6 months file a nil FPS indicating nothing for a further 6 months and so on.

Our issue with that is we pay the payroll software providers per licence of company, so we suddenly need some "nil" companies just to file a nil FPS every 6 months.  We are hoping to use the HMRC basic tools to do this as I think that allows multiple employer set up.

 

frustratedwithhmrc's picture

Easements...    1 thanks

frustratedwithhmrc | | Permalink

Euan MacLennan wrote:
Rebecca told us on a course yesterday that there is a concession - or "easement" as she put it - where all the following conditions apply:

  • staff are paid daily for work done on that day, and
  • they are paid by cash or cheque (not electronically), and
  • payment is made at a time (11:30 p.m. for bar staff?) or place (at the field gate for crop pickers?) where it would be impractical to make an RTI submission on or before the payment, and
  • the employer cannot know how much the payment will be in advance.

In these circumstances, the "on or before" rule is relaxed to allow the RTI submission to be made up to 7 days later.  A pity that it is not relaxed to the end of the month, but every little helps, I suppose.

The fact that these 'easements' (stupid term) are being introduced at all shows the usual lack of consideration from HMRC for small businesses and those that don't operate in an office environment of almost exclusively PAYE employees working 9-5 Monday-to-Friday.

This is exactly why RTI should have been introduced as a phased roll-out with those most capable of dealing with RTI as a large scale systems integration project in the forefront (i.e. companies with at least 100 employees)

A phased implementation over 2-3 years would have allowed HMRC to balance their resources appropriately and deal with groups of taxpayers such as cleaning firms and pubs at the end of the rollout rather than the beginning.

There is no value being lost here, certainly the vast majority of taxes due under PAYE would be collected from the large corporates. The very diversity of the smaller companies makes them more difficult for HMRC to deal with and by definition raises costs.

The RTI phone lines are going to be inundated unless someone at HMRC discovers some common sense and defers the roll-out for SME's & OMB's and others until HMRC are ready to deal with them.

Euan MacLennan's picture

Not quite correct

Euan MacLennan | | Permalink

Mister E wrote:

tkingston wrote:

Won't you still need a PAYE scheme if, although the director's pay is below the LEL and he has no tax to pay, he has to complete a P11D, because that requires a PAYE scheme reference?

On a recent HMRC RTI presentation I attended we were told that they would have to file a nil FPS each month, or at least file a nil FPS in April 2013 and indicate there will be no further reports under RTI for 6 months (which I think is the maximum time you can advise HMRC that there are no reports).  Then every 6 months file a nil FPS indicating nothing for a further 6 months and so on.

Our issue with that is we pay the payroll software providers per licence of company, so we suddenly need some "nil" companies just to file a nil FPS every 6 months.  We are hoping to use the HMRC basic tools to do this as I think that allows multiple employer set up.

As I understand it, there is no such thing as a nil FPS (Full Payment Submission), which would be a contradiction in terms.  The requirement is for monthly nil EPSs (Employer Payment Summary) and that one problem with these is that they can only be submitted between 6th and 19th of the following month, rather than at the same time as live payrolls within the month.

Apparently, there is also something called an Inactivity Report, but I don't know anything about it.

RTI - Pay late    2 thanks

thegable | | Permalink

Why the obsession with running the payroll and paying simultaneously? As long as the payroll run is accurate and you settle the PAYE etc correctly why does it matter if you pay the employee earlier or later? Who's to know?

Running Director's payroll 11 months in advance    1 thanks

CJMaslen | | Permalink

I like the proposition put forward by Rebecca, which is similar to  what I have been ding for some years.  I calculated the tax and NI for the year and then paid the same amount every month and paid the tax and NI every quarter.

Sadly, HMRC snookered this simple procedure two years ago by suddenly changing their minds about which source of income was the primary PAYE sourse, resulting in multiple confusing changes of PAYE code - all ultimately to no effect, but causing a significant amount of wasted time.

Unfortunately, random changes of PAYE code could affectl the  simple ploy of running the payroll for 11 months in advance.

I am concerned at the way in which the introduction of RTI has spawned a whole new industry and I feel sure that many unpredicted problems will emerge as it is rolled out.. .

Submitting FPS in advance

Kazmc | | Permalink

Andrew Lee wrote:

Nearly all our limited company client directors are paid the basic £620 per month and in order to minimise our processing cost we have tended to prepare three month's payroll quarterly in advance.  This also minimises the need to re-run when companies suddenly cease unexpectedly.

I have spoken to both Sage and HMRC to see if we can submit RTI reports up to three months in advance i.e. "on or before payment is made" and neither could answer my question.  Sage referred me to HMRC and the officer I spoke to, having asked around the office, said that no-one knew and also that they were not encouraging employers to submit data too far in advance in case it turns out to be incorrect or needs to be changed.

We have therefore adopted a wait and see position in the hope this will soon become clearer.  There will be a financial impact if we have to process all our payrolls every month, but not if we can still run three months in advance.

 

 

 

Hi there

I would call SAGE again as I was told we could submit FPS's up to 92 days in advance. I have to say that the last 4 phone calls we have made to SAGE helpline has resulted in us receiving incorrect information so I would double check, it really does depend on who you talk to I'm afraid.

It was one of the RTI trainers who told me about the 92 day ruling so I would hope he had got this right!

Many thanks and if you do find out that I am wrong please do let me know.

Karen

 

two cheques ?

mickeyparish | | Permalink

"The main problem for advisers is that the director may actually draw the cash and they are left to decide later how much of this is salary and how much is going to be dividend. If the director has an overall debit balance on his loan account, the amounts he draws and subsequently decides are salary payments breach the on or before rule (assuming that the total amount is in excess of LEL). This presents the risk of substantial penalties (of up to £1,200) in 2014/15 when the late filing penalties commence."

 

Presumably the rules are met if the salary is paid by cheque or bacs to the director and the director repays the loan to the company by cheque or bacs - possibly the next day ?

Extra work and a nuisance but how can this not be legal ?

PAYE scheme always required for company?

MartinGatehouse | | Permalink

How does  Tom McClellan suggest a company files its nil P11D(b) (or P11Ds) for its director)s) if there is no PAYE scheme?

Just one fly in the ointment    5 thanks

chEEK | | Permalink

Has anyone seen the latest drivel from the IR35 Forum?

Their last minutes (reported on this site) said that someone had asked HMRC if contractors needed to include dividend payments under RTI - HMRC apparently apologised for not answering the question (since it had previously been asked) and said that they would get back to them at their next meeting.

 

These people are doing more harm than good. The rules were already clear - dividend payments are not PAYE, therefore nothing to do with RTI - until this nonsensical IR35 Forum try to justify their existence and make HMRC think "Hmmm.... maybe...".

 

What have they achieved since the PCG invented their nonsensical "Business Entity Tests" rubbish?

1. Foisted a new set of tests on contractors without so much as a by-your-leave (the PCG membership only heard about it AFTER it had been submitted).

2. Gave the government an alternative to a real fix for IR35.

3. Now they potentially turn RTI into a danger zone when it was relatively benign before.

 

These people need to pack up and get out of town. I have left the PCG cos they are doing more harm than good.

 

The PCG, like IR35, are a bloody chEEK.

P11Ds    2 thanks

njpatel | | Permalink

Our call to HMRC on this subject was met with a response that even if director is not drawing a salary but may have benefits or expenses to declare on P11D, then a PAYE scheme would be required and FPS would need to be submitted.

In some situations, for example when the company is semi-dormant, no one would know if a P11D is going to be required. so what do you do. Register or remain registered and submit FPS's just in case. What a waste of time!

RTI - Director payments    1 thanks

Hazel Edwards | | Permalink

I think further clarification is needed on this whole subject of 'drawing' on a DLA; if a Director is 'paid' £624 a month through a payroll and does not physically draw the cash throughout the year, but the DLA is credited on a monthly basis, does this mean that an RTI submission (FPS) is required each and every month as well as an EPS, assuming there is no tax/NI implication?

RTI

John F Reed | | Permalink

Why do all "improvements" and "simplifications" promoted by HMRC always have such unforeseen downsides for those who actually have to implement the new rules?  Coupled with expensive fines for failure, even if with no tax loss.  

Real prior consultation is the answer, which involves not just listening but taking in to account the views of others.

Agree with Hazel    1 thanks

norstar | | Permalink

I've just had two totally dejected payroll staff return from Rebecca's lecture today at Denbies. They both felt she was leaning too far towards HMRC's stance, which having read the notes, I must say I agree with. It seems that Rebecca is saying that RTI requires people to physically withdraw equivalent reported payments, which doesn't appear to be the case (ref on or before rule). She went further to claim she would eject clients who didn't do this which seems a tad draconian! Furthermore, her example of a client with fingers in the till made no sense - forcing the client to physically take £600 odd each month in accordance with the RTI reports, then jnl the rest of the niknaks against subsequent dividends doesn't make any difference to the "old" way of jnl'g all withdrawals the to DLA then clearing by way of declared salary and dividends!

The idea of forcing a client to physically withdraw monies included on RTI is farcical. The rules would be, as far as Hazel's comment goes, the same as an interest charge journaled to a DLA.

As far as I can see, if dividends existed at the start of each month to create a credit balance to draw upon at any time, HMRC have no grounds to argue that a £100 here, or a £1000 there is a "payment of earnings" rather than withdrawal of a loan balance owing to the director. If Rebecca is saying that isn't so, please show me the legislation to support it. Were that the case, it would be impossible to ever draw the balance of a director's loan account as it would be PAYE'd every time.

If having drawn upon dividends throughout the year to 28th February say, at 1st March a director's fee of £7,300 is voted and included on RTI, in accordance with the "on or before" rule, a credit goes to the DLA on which the client may feel free to draw money on according to cashflow. So where is the problem? Rebecca's assertion this must be physically paid is, in my opinion, just daft to even consider for a small business where they don't have the luxury of £1000s in the bank.

I accept that paperwork must be in order and as long as dividends were supported by dividend vouchers and sufficient company reserves, and were declared on the 1st of each month say with drawings following after, I fail to see how HMRC have any grounds to contest this and I would welcome a Tribunal case if they say otherwise.

The only worry I would have is where insufficient reserves exist to vote a dividend, but in that case, if a 4% interest charge becomes due on the balance and the company pays Corporation tax on it, how does this then affect RTI? Again, it is not for HMRC to argue that the £100 drawn is earnings rather than a loan advance if the paperwork and facts say otherwise.

If we are saying that RTI can create a loan balance (using the on or before rule), it follows that withdrawal of a loan balance cannot automatically mean an RTI submission required. No?

Finally, advances to staff apparently are caught by RTI, but if a member of staff is contractually entitled to be paid monthly and receives regular loans/advances, how can HMRC argue this? To contest that would mean they are entitled to classify every loan advance to a member of staff as RTI relevant. This cannot be the case? To say otherwise suggests that HMRC are now entitled to decide for themselves how they want to regard transactions despite paper evidence to the contrary - dangerous no?

There will need to be cases settled by Tribunal before we have any clarity on this nonsense.

I have said it before and will say it again-

David Gordon FCCA | | Permalink

Directors are under wages legislation, and  are employees. They must have proper contracts of employment, and may not be paid below the national minimum rate.

 So if they have no other source of income or employment your contract must include a"reasonable salary". We use 30 hours as a standard.

 It must also include matters such as cars, vans and benefits in kind if any.

 Otherwise HMRC may / will get you under the alternative of Employment law fines, which are heavy- or NI on erstwhile divs.

If God forbid the company is short of cash, the director may waive salary. But do a "Minute".

 What you may do is include payment clauses which state in essence cash (and benefits-in-kind) available to directors is deemed a) re-imbursement of exs. b) against o/s divs c) against o/s directors acs and d) against PAYE remn.

 Also, as with many "Professional" contracts, the Co may require unpaid overtime to complete time sensitive work.

Then vote a sensible div at the beginning of the ac year. If at the end of the year there was insufficient cash to pay both minimum legal salary and div, the div may be waived.

Also, that the co may in gen meeting amend any of these provisions.

Also, Important, RTI is on Payment. If according to the contract the funds are not available to pay salary, even though you have done a payslip, you do not submit tax till salary is real time paid..

Last but not least- tax codes- bu***er the codes issued by HMRC. If you sincerely believe it is wrong- use a code that will ensure correct tax will be paid. Especially where you know that the director has other taxable income. It is better to pay a bit over each month than explain to a client why he has a fat cheque to pay at the end of the year.-

In small companies I do not ,understand what the problem is with benefits.

Benefits may be debited to Dirs ac against unpaid divs being payment-in- kind, instead of cash, of dividend- so no PIID needed. (Just do a Minute)

 

 

 

Not quite    2 thanks

norstar | | Permalink

David Gordon FCCA wrote:

Directors are under wages legislation, and  are employees. They must have proper contracts of employment, and may not be paid below the national minimum rate.

 

Not so. Directors without a contract of employment and paid a fee for being an office holder are not subject to NMW.

Old argument on dividends

The Limey | | Permalink

mickeyparish wrote:

"The main problem for advisers is that the director may actually draw the cash and they are left to decide later how much of this is salary and how much is going to be dividend. If the director has an overall debit balance on his loan account, the amounts he draws and subsequently decides are salary payments breach the on or before rule (assuming that the total amount is in excess of LEL). This presents the risk of substantial penalties (of up to £1,200) in 2014/15 when the late filing penalties commence."

 

Presumably the rules are met if the salary is paid by cheque or bacs to the director and the director repays the loan to the company by cheque or bacs - possibly the next day ?

Extra work and a nuisance but how can this not be legal ?

Except we are now back to the old argument - it is not possible to decide after the date that money was a dividend, and any dividend must have been declared by reference to relevant accounts.

but

norstar | | Permalink

The Limey wrote:

Except we are now back to the old argument - it is not possible to decide after the date that money was a dividend, and any dividend must have been declared by reference to relevant accounts.

 

It isn't, but in the case of a single director, owner managed Ltd company, how can HMRC prove otherwise when presented with minutes and copy vouchers at a later date having requested them?

Uh...    3 thanks

whiteways | | Permalink

I have read the post four times and I seem to be the only one who's still utterly confused.

Most of my Directors are paid up to the Secondary Threshold, not the LEL. Ergo, they require a PAYE scheme, but there is not and will never be any liability to Tax or NIC.

However, if all payments are made in the first instance by credit to the Directors Loan Account and not in cash, then if this post is correct, there will never be any reportable payments to generate a FPS. 

So how would the scheme be operated in practice?   

JAADAMS's picture

A case for Working Together or whoever to sort out?

JAADAMS | | Permalink

This is getting all too complicated and if you look at accountingweb's  Any Answers the question re our directors salary/dividend problem has been asked again and again for some time now with varying suggestions in reply.

I met someone at an CIOT event last week whose firm is doing RTI already. I did a minor moan about it all and her response what that they had had no problems at all. She did warn that HMRC's computer will automatically assume the PAYE scheme is ended and move to close it down if no returns have been submitted for 3 months.

Any course I've been on re RTI all assume that directors are paid the same amount every month and a return is going to be submitted every month.

As I said in my first comment when asked on a webinar recently the presenter just said that 'nothing had changed' and that there will still be an annual basis.

Perhaps this 'annual basis' is available only on HMRC's computer scheme?

Re dividend waivers - always be careful - the waiver should be in place before the right to a div arises and the method should be used sparingly - dont waive every year .

Further info to be found here:

www.accountingweb.co.uk/topic/tax/dividend-waivers-get-details-right/481882 

 http://www.accountingweb.co.uk/topic/tax/dividend-waivers-get-details-right/481882 http://www.accountingweb.co.uk/topic/tax/dividend-waivers-get-details-right/481882  

 

 

 

 

mr. mischief's picture

Relaxed    1 thanks

mr. mischief | | Permalink

I seem a lot more relaxed about this than most people.  My approach is simply to go forward with sensible procedures at no extra costs to clients - whether that be "approved loan repayments" to staff formerly paid weekly now monthly, or directors being paid quarterly.

I've been active on the RTI Q&A sessions on Twitter posting exactly what I plan to do in these two key areas.  The HMRC staff were either not OK with it or did no know.  My next question was simple:

Tell me the piece of legislation which says I cannot legally do this.

Silence.  No replies.  Says it all.

I think we can all more or less agree this whole thing will be a massive shambles.  I have a feeling HMRC will have a lot more firefighting to deal with on PAYE than the stuff we're coming up with on these threads.  Keep your head down and in 12 months time it will still be on your shoulders!

 

 

Paul Scholes's picture

Stay Calm....Don't panic....we're not doomed..    3 thanks

Paul Scholes | | Permalink

Reference comments above, why not just keep it simple and pay £624 a month and send in the FPS (or whatever the software/HMRC tool decides) and put the kettle on?

As it happens £624 leaves my bank account each month with my dividends crediting my DLA, but I could just top up my DLA with the salary as well, surely that's "making it available" and if the account is in debit then I'd suggest a separate director's salary account, which can be kept in credit.  I'd like to see HMRC impose a set off of a debit & credit balance.

Far too complicated, plus it'll sort itself out, these things always do.....well apart from IR35 I suppose, but with only 1 IR35 review in over 10 years, I'm not losing any sleep on that either.

 

Evidence    1 thanks

The Limey | | Permalink

norstar wrote:

The Limey wrote:

Except we are now back to the old argument - it is not possible to decide after the date that money was a dividend, and any dividend must have been declared by reference to relevant accounts.

 

It isn't, but in the case of a single director, owner managed Ltd company, how can HMRC prove otherwise when presented with minutes and copy vouchers at a later date having requested them?

 

Don't forget the relevant accounts they must be declared with respect to as well. 

 

I'm glad you're OK with fraud though. I'm not. 

RebeccaBenneyworth's picture

!    3 thanks

RebeccaBenneyworth | | Permalink

Hi all, thanks for comments of all varieties. Here are a few responses to your queries.

For Andrew Lee and others concerned about the ability for file in advance - I have been toold by more than one person that "there is no limit on how far in advance you can file an FPS". Whether that is desirable - for the reasons I touched on above - is another matter, but I have been reassured that it is technically possible. I will take up again with top people and HMRC and come back if any different, but I'm pretty confident on that one.

For Patricia - your question nicely answered by Euan and others. Yes the "easement" is not brilliant but is better than daily reporting as a start.

For Janet Gee - the hours on RTI will not be used for minimum wage enforcement. However, if a spouse of a director is an employee then you should be paying NMW for hours worked otherwise the company is exposed to penalties. If NMW chaps catch up with you it would be tricky. Have a think. But don't worry about what hours you report on RTI - this is for benefit entitlement only - hence <16, >=30 or in between.

Ermintrude - correct. If someone is paid at or above :LEL there must be a scheme and the payments must be reported to generate NI credits. Been this way for a few years now.

Peter Tucker - agreed re dates. HMRC may tie themselves in knots for a bit but should eventually get the knack. Being able to reallocate payments via the Business Tax Dashboard would help!

tkingston touches on an important point. For some directors paid below LEL no reporting requirement exists, but you may want a scheme to report P11D. We are hoping to confirm that an "annual scheme" will suffice here - no nil payment reports and just a P11D / year end submission. Can't nail that one 100% yet, but looking possible. Remember if you pay anyone at all at or above LEL you must report directors paid less than LEL. Same goes if you have someone on BR - all payments must then be reported.... At present worst case scenario is that yopu'll have a scheme and have to do inactivity reports. There's plenty on the site about those elsewhere.

frustratedwithhmrc - I agree. If RTI had not been hijacked by the DWP things would be very different!! I've been at the House of Commons tonight and have veritably bent the minister's ear on this topic (and I am not the only one) but DWP requirements for UC - which is after all a key Giov't policy - are a real issue here.

thegable - I must correct you. The RTI submission - Full payment submission or FPS - shows the date of payment which the law requires is on or after the date on which the RTI submission is made. Given that it does not take Einstein to compare (a) date of submission, and (b) stated date of payment then HMRC will be able to identify late filing easily (unless you lie - not real;ly advisable). Penalties of £100 per month min will apply form April 2014. Not really a good idea. Might debate the merits, but them's the rules!

CJMaslen and others - yes 11 months in advance might be tricky if code changes / plans change / director goes into PAYE. but the principle is to file FPS's that agree with amoutns paid. Paying a full year in one go might not be possible or desirable. My gut says that quarterly in advance is a good happy medium, but this may not work for some. As long as members understand the principle - i.e. that when loan a/c is in debit, drawing cash triggers the PAYE requirement and therefore RTI, they can work out the best route, If loan a/c is in credit then PAYE is generally due when the credit is made - MUCH less of a problem.

mickey parish - agreed - exchange of cheques is fine as it locks payment to RTI which is what you are trying to do. BUT clients get lazy and decide to leave it as it is "in and out" = problem!!

Hazel - start with the basics. When a loan account is in debti and salary is to be paid, crediting the salary by journal is a problem because the payment has already been made (viz - debti balance). By tying the RTI and payment together you avoid this problem.

Anyone who is puzzled needs to look at the basics of when PAYE is due for directors. It is the earliest of when payment is made; when the director is entitled to be paid; when the payment is credited in the company accounts or records, or when the remuneration is fixed or determined. (see page 6 CWG2 2012). Whe  the loan account is in debit this will be whe payment is made (as it is earlier thaneverything else).

Norstar - I'm sorry thatyour staff were disappointed. I have tried to explain that the law (not HMRC) requires that payments are reported on or before the time of payment. Journaling salary (or - perish the though dividend) does not work because the requirement to account for PAYE passed when the cash was taken. My only focus, therefore is to help clients avoid very substantial penalties for breach of the on or before requirement. For quite a number of reasons, jornalling both slaary and dividend is no longer a suitable way to go. Dividends need a range of procedures under cpmpany law to be effective and a salary cannot be "paid" by journal unless the loan account is in credit - in which case all of these problems pretty much disappear. Far from leaning too far towards HMRC, I'm trying to support practices to ensure that their clients don't get substantial penalties next year. I'm explaining the law - and not "what HMRC says". And, by the way, HMRC has looked at creation dates for dividend minutes and prosecuted for Fraud where these have been backdated. - that is created after the date on which they purpose to be created.

 

Train journey ending - more tomorrow if necessary!

 

frustratedwithhmrc's picture

Same old nonsense...    6 thanks

frustratedwithhmrc | | Permalink

David Gordon FCCA wrote:
Directors are under wages legislation, and  are employees. They must have proper contracts of employment, and may not be paid below the national minimum rate.

Utter rubbish. A director is an office holder, who is subject to PAYE on his/her emoluments, but he/she is not an employee unless there is a 'contract of service' in place with the company stating that he/she is an employee.

NMW does not apply to office holders who have statutory duties which must be undertaken regardless of wages/salary.

HMRC try the same old guff time and again, but as an FCCA, you should know better.

Paul Scholes's picture

Thanks Rebecca

Paul Scholes | | Permalink

I can only imagine how gritted your teeth have to be, whether at Westminster or on here.

Whilst an academic point, would a salaries control or director's salary account, separate to the overdrawn DLA be a way around the problem of salary having been received in advance if credited to an overdrawn DLA?

Obviously it would have to be kept tidy with only salary cheques going there but, given that HMRC will tax an overdrawn current account when there is also an in credit loan account (with nothing in writing authorising set-off), I can't see how they could apply different rules here? 

 

Nil reports and LEL

Mister E | | Permalink

RebeccaBenneyworth wrote:

tkingston touches on an important point. For some directors paid below LEL no reporting requirement exists, but you may want a scheme to report P11D. We are hoping to confirm that an "annual scheme" will suffice here - no nil payment reports and just a P11D / year end submission. Can't nail that one 100% yet, but looking possible. Remember if you pay anyone at all at or above LEL you must report directors paid less than LEL. Same goes if you have someone on BR - all payments must then be reported.... At present worst case scenario is that yopu'll have a scheme and have to do inactivity reports. There's plenty on the site about those elsewhere.

Rebecca

Can you clarify something with this, or ask HMRC to clarify this:

If PAYE scheme exists for say P11Ds, or for the odd times an employee does go over the LEL, do you have to report all the earnings when they are paid?

I originally understood that if all employees are under LEL no reporting requirements; so if no scheme no action, but if a PAYE scheme exisits then a nil EPS is submitted each month, or inactivity report (or whatever it is called).

However there is conflicting advice that if a PAYE scheme exsists you have to report ALL employees even if all below LEL.

Example:

month 1 - 2 employees paid £300 each

Month 2 -  1 is paid £500 and 1 paid £300

So Month 1 - can you file a nil EPS OR do you have to report on a FPS ?

Month 2 - FPS required to report both employees as one employee over LEL.

It is month 1 which is not clear in my mind.

Thanks.

Euan MacLennan's picture

In case Rebecca is not on a train ...

Euan MacLennan | | Permalink

I will try to give you answer.

Mister E wrote:

Rebecca

Can you clarify something with this, or ask HMRC to clarify this:

If PAYE scheme exists for say P11Ds, or for the odd times an employee does go over the LEL, do you have to report all the earnings when they are paid?

I originally understood that if all employees are under LEL no reporting requirements; so if no scheme no action, but if a PAYE scheme exisits then a nil EPS is submitted each month, or inactivity report (or whatever it is called).

However there is conflicting advice that if a PAYE scheme exsists you have to report ALL employees even if all below LEL.

Example:

month 1 - 2 employees paid £300 each

Month 2 -  1 is paid £500 and 1 paid £300

So Month 1 - can you file a nil EPS OR do you have to report on a FPS ?

Month 2 - FPS required to report both employees as one employee over LEL.

It is month 1 which is not clear in my mind.

Thanks.

Yes - you must file an FPS for Month 1 (and 2 and for any month in which payments are made), covering all employees who are paid anything, whether under the LEL or not.  Only if no-one is paid anything can you file a nil EPS.  If you have employees who may well not be paid anything for several months, you should mark them as having irregular payments to avoid HMRC assuming that they have left your employment.  As Paul Scholes remarked, Don't panic! - just leave it to the payroll software to decide what RTI submission is required.

Sorry but I am correct

David Gordon FCCA | | Permalink

re: directors who are office holders.

The comment that they do not need a contract is correct but it does not apply to directors who are "Working" directors.

Being a "Working" director, and hence an employee,  is a matter of fact. vide the self-employed / employed consideration.

 Non-executive directors (any size company may have a non-executive director -) are not entitled to sick pay, maternity pay, and should have a contract setting out their duties, especially setting out what they are not responsible for.

See company law cases where the wife-director has been held responsible and heavily fined, even though in reality she had SFA to do with the company. 

Anyway, are you going to tell HMRC you are paying Missus a salary but actually she ain't doing any work for the company? Get real.

Once you have set up the paperwork, giving the director a contract is a one-time job when you take on the client.

Similarly dividend paperwork may done as a batch job once or twice a year.

 

 

RebeccaBenneyworth's picture

Minimum wage    3 thanks

RebeccaBenneyworth | | Permalink

There was an agreement between IOD, HMRC, and some of the accounting and tax bodies when minimum wage came in that unless a working director chose to make himselfnan employee he was not for these purposes, and was paid as an office holder "even if working full time in the business". It further confirmed that in that case (the ftwd) unless he specifically issued himself with a contract of employment  - which is an open choice for him - then minimum wage does not apply.

In the context of RTI this is academic as the hours will not be used for NMW enforcement.

More later!

and another thing

David Gordon FCCA | | Permalink

 Employment law -EU regs has nothing to do with tax law.

 It is its own beast.

 vide conflicts between VAT regs and Tax regs.

 Most of us must have encountered situations where Common Law conflicts with Revenue or Company Statute.

 It is just that in this case Employment Law is master.

 Anyway, Catch 22, if there is not any paperwork defining the relationship between the director and the company, How are you going to dispute with HMRC.

 We tend to forget that a company even a "One-man" band, is a separate legal "person" having a commercial or legal arrangment with another seperate "Person" the director. Just as in other commercial situations when push comes to shove- verbal agreements are frequently worth nothing.

 If God Forbid you have to make an insurance claim for loss of earnings, how are you to prove your claim if there is no  contractual relationship?.

Tax is the tail of the dog, not the head.

 

 

 

Advice on this thread    2 thanks

Oppco | | Permalink

We are all trying to work out what to do with our 'one man band' limited company payrolls from 6 April.

It does not help when contributors present incorrect opinion as 'fact'.

Mr Gordon, will you please stop doing this?

 

 

patricia caputo's picture

Daily paid employees    1 thanks

patricia caputo | | Permalink

 

Thank you very much for guiding me to the easement.  

I have attended three RTI  events now - two CIOT and one CIPP and the advice differed with each event - indeed the presenter at the "Everything you need to know about RTI" event explained that it was everything that we needed to know about RTI on that day; however the course content had been rewritten four times as HMRC would stipulate something then the professional bodies would point out that it was unworkable and HMRC would adapt due to this and so on.

Having spoken to employment taxes specialists who feel that RTI is completely unworkable I do not share the optimism of some Accounting Web subscribers.

 

Exception taken

norstar | | Permalink

The Limey wrote:

Don't forget the relevant accounts they must be declared with respect to as well. 

I'm glad you're OK with fraud though. I'm not. 

 

To be honest I take exception to that comment. And also Rebecca's comment "And, by the way, HMRC has looked at creation dates for dividend minutes and prosecuted for Fraud where these have been backdated. - that is created after the date on which they purpose to be created."

 

I did not say that clients were backdating dividends. I quite clearly said in my original post "Surely by timing of dividends on paper, it would never need to be in debit and thus avoid the problem of "payments in advance"?" - ie that if a client had a credit loan balance which was created by dividends - obviously correctly declared - then surely this RTI nonsense didn't apply and statements that "a client must physically draw the £7300" were nonsense. If a one man band declared a large dividend at the start of the year based on previous accounts, then this problem disappears and I see no need for making a client take the cash as per the RTI as suggested by others. Let alone threaten to cease acting if they don't!

 

My comment to you Limey was that HMRC may try and argue that dividends were backdated, even when they weren't because in my experience, HMRC will now try anything to extract every last drop of cash to "plug the hole", but in the case of a small one person limited company, proving either way was likely to be troublesome. There is no requirement for dividend vouchers to be computerised, so how do you prove either way?

 

I honestly believe some people on this forum need to get out in the real world, and for the record and to be clear, my firm do not commit fraud and encourage the practice of backdating anything, and anyone who suggests otherwise is likely to hear further on the subject. I am simply trying to clarify this RTI issue and how it will tie in with real life scenarios. I would appreciate an apology Limey?

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