RTI troublespots: Starters/leavers, CIS, NMW & multiple FPSs

Rebecca Benneyworth responds to some of the quirks of RTI raised by AccountingWEB members during recent weeks. Click the headings below to go to the issue you want to research.

Contents

Rebecca Benneyworth is lecturing throughout March on ‘RTI and other PAYE issues’ as part of the Tolley CPD Seminars programme. Look out for more RTI troublespot articles on issues raised at her talks and on AccountingWEB’s Any Answers page.

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Comments

Directors    1 thanks

Malet | | Permalink

"To recap, directors without a contract of employment and paid a fee for being office holders are not subject to NMW, nor does this fee need to be reported via PAYE RTI"

So directors on minimum salary do not need to be reported through RTI if there is no contract in place?

The puzzle thickens... 

KH's picture

Have I understood this correctly???    1 thanks

KH | | Permalink

"This issue ... about whether directors were subject to the national minimum wage. To recap, directors without a contract of employment and paid a fee for being office holders are not subject to NMW, nor does this fee need to be reported via PAYE RTI."

Have I understood this correctly, that unless a director has a contract of employment there is NO need for the director's fee to be reported via PAYE RTI? ... If so, this means that most directors of single member/director LtdCo will be outside the scope of RTI .... because, sic., the director's wages are not "wages", but "fees" ??????

I really hope this is the case, but fear it is not.

HELP!!!!!!!!

NI

Jon Darlington | | Permalink

Interesting point new to me too, but most directors' fees will be above the LEL, possibly just to get their NI years in without paying anything (how can I be so cynical, or the system be so stupid?) and will have to be included under PAYE/RTI anyway. 

jline199's picture

Does that mean?

jline199 | | Permalink

If Directors without a contract of employment are excluded from RTI, how do HMRC get to know how much they have earned?

At present, of course, the figures for both employees and such directors get reported in the PAYE end-of-year return, but under the RTI regime?

I would appreciate clarity on

Ian Lawrence | | Permalink

I would appreciate clarity on this point too.  Have I just spent 2 months gearing up for putting 72 one-man consultant clients onto monthly payroll needlessly? A part of me does hope this is true !

Tom 7000's picture

Low paid directors

Tom 7000 | | Permalink

nor does this fee need to be reported via PAYE RTI." 

 

I dont believe this....show me the rules that back this up I think this is wholly wrong...it will leave a million +  directors a year with No RTI record, No Ni payments No P60 etc

 

nope....wrong

No, I don't think you have ...

vstrad | | Permalink

If a director (a non-exec, say) does little more than turn up for quarterly board meetings then (s)he is likely to be remunerated by a fee rather than a salary. If, however, he is a director of what you describe as a "single member/director Ltd Co" then he will be working full time (or at least a significant number of hours per week on a regular basis) and his remuneration could hardly be described as a fee. The distinction between a wage or salary and a fee is about the regularity of the work and payment for that work, not whether or not there is a contract of employment. 

DIrectors and RTI

lawrencewebster | | Permalink

The key point as explained in the earlier article on low paid directors is, if they are paid above the Lower Earnings Limit (LEL), then an RTI submission is required, irrespective of the number of hours worked.

Director’s fees

Sujeev | | Permalink

My understanding is that directors fees are subject to income tax and NIC (no NIC if they from abroad and have A1 certificate or equivalent), if the fees are subject to income tax/NIC  then I believe we have to submit FPS under RTI for directors fees.

jline199's picture

"The key point as explained

jline199 | | Permalink

"The key point as explained in the earlier article on low paid directors is, if they are paid above the Lower Earnings Limit (LEL), then an RTI submission is required, irrespective of the number of hours worked."

OK, but for Directors there is an annual pay period. I have clients where the Director pays no NI for the first few months of the tax year, and then it starts to bite.

So no RTI at the beginning of the tax year, then RTI kicks in. But how do HMRC get to know about the earnings in the first part of the tax year?

John Stokdyk's picture

Missing link

John Stokdyk | | Permalink

Some of the commentary about non-reporting of directors fees came from Rebecca's previous RTI troublespots article on low-paid directors, but I neglected to include a link when preparing this article for publication.

I have rectified that. During the discussions, Rebecca clarified that for some directors paid below the LEL, no reporting requirement exists. She explained further: "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 full-time working director) unless he specifically issued himself with a contract of employment  - which is an open choice for him - then minimum wage does not apply."

That discussion was in the context of the minimum wage. I will see if I can reach her on her on-going RTI lecture tour to confirm this point further - but suspect that switching all of your clients to this approach may put you and them at much higher risk of further investigation (but that's my own non-legal view).

PS - Again, please forgive someone not a qualified tax adviser from commenting, but wouldn't directors who are paid a combination of fees below LEL and dividends report their income and earnings via self assessment?

 

directors families and tax credits

mrcreosote | | Permalink

My understanding of the Minimum Wage legislation was that a director's family are not subject to this if they work for the family company and live in the family home.  Re the above comment on directors' wives, is this not true?

Also, there was a move at one time for tax credits to make a distinction between office holders and employees where directors are concerned, the implication being that office holders were not entitled to tax credits as they were not in employment.  If that was true, then surely office holders are not employees and not subject to RTI?

 

 

Submitting FPS in advance

DJMMHL | | Permalink

As a payroll bureau we have several payrolls which we do 3 monthly in advance for example in April we would process months 1,2 and 3 (April, May and June).  Can we submit the FPS for the three months all at the same time i.e. in April?  The payroll dates for each month would be the last working day of the month.  Is there an indication of how far in advance the FPS can be submitted?

We also have a client who has one employee who is paid the same net amount every Friday in cash.  We currently process the payroll at the end of the month producing either 4/5 payslips for the whole month.   If we changed the process date to early in the month i.e. before the first friday could we then also process the other 3/4 weeks at the same time with the pay dates being the subsequent fridays in the month or will we have to submit the FPS each week?

I have contacted HMRC to ask how far in advance we are able submit the FPS and there was noone who could give me the answer but perhaps you can.   

Euan MacLennan's picture

FPS in advance    1 thanks

Euan MacLennan | | Permalink

Yes - you can file FPSs in advance - up to 52 weekly ones in advance if you do it in the first week of April.  The risk of doing it too far in advance is that if anything changes, you will have to file amended FPSs to correct every single one of the original FPSs filed in advance.

This should not be a problem with 3 months in a quarter or 4/5 weeks in a month.

Euan MacLennan's picture

FPS must be filed before every payment

Euan MacLennan | | Permalink

jline199 wrote:

"The key point as explained in the earlier article on low paid directors is, if they are paid above the Lower Earnings Limit (LEL), then an RTI submission is required, irrespective of the number of hours worked."

OK, but for Directors there is an annual pay period. I have clients where the Director pays no NI for the first few months of the tax year, and then it starts to bite.

So no RTI at the beginning of the tax year, then RTI kicks in. But how do HMRC get to know about the earnings in the first part of the tax year?

If you have a PAYE scheme and make any payments to any employees, you must file a FPS on or before the payment and the FPS must include all the payments, whether above or below the LEL.  The significance of the LEL is that if no employee is paid over the LEL (and everyone has sufficient tax-free allowances available), you do not need a PAYE scheme at all and if you do not have a PAYE scheme, RTI cannot apply.  If you pay no-one above the LEL, but still have a PAYE scheme in place, you must still file an FPS before every payment.

Risk avoidance...

P2 | | Permalink

The primary risk in respect of failure to operate PAYE/NIC on directors remuneration lies with the engaging company whom HMRC will expect to settle any arising liabilities to PAYE and NICs (with interest and penalties).

HMRC is increasingly targetting remuneration packages and those arrangements designed to circumvent PAYE/NIC (e.g. dividends without supporting process and paperwork) and therefore the position of director/shareholders needs to be managed "proactively".  Operating PAYE gives a further opportunity to achieve this and state clearly what payments to director/shareholders are intended to represent - wages, salary or dividends.

(Furthermore the opportunity for Directors to have the Class 1 NICs paid for them by the Government when they report a low wage is a bit of a no-brainer).  If HMRC aren't told what is happening the NICs entitlement goes unrecorded.

 

 

RTI Director Salary one payment

Andrew1946 | | Permalink

Like so many of other respondants I am the only paid Director of a  SME Ltd Co, and am remunerated by way of Salary/ Dividend.  In the normal course of the year I take monthly drawing the debit entry going to my Drawings/Current A/c, depending upon the credit balance of this A/c, and of course the profitability of the company,requisite Dividends are paid monthly/quarterly. In an attempt to keep administration and reporting to a minimum, this year (2012/13) Monthly salary, below the LEL and the secondary NI threshold has has been paid directly and identified as payroll costs to my personal Bank A/c  the totals of which will be reported through the normal end of year payroll submissions to HMRC. 

In 2013/14, I propose to carry out the same drawings proceedure but instead of the payroll payment each month, just make my normal monthly drawings say £600 more, and making a  salary payment in March 2014, having previouly notifying HMRC that this Director is on an annual payment schedule, thus only needing to do maybe one or two RTI submissions.

Firstly is my understanding/application of the rules correct or is there some massive hole I'm falling into, secondly, by marginally paying a higher Dividend say between £7000-8000, to compensate for no or a lower salary mean a higher Corp Tax bill         

CIS and RTI any answers please?

kouloura | | Permalink

 

I am a little confused as to what happens when you have CIS suffered on a payroll that is in excess of the actual PAYE due, I have attended an online course this morning with our software provider who has skirted around this very vaguely - but informed me that if our client has a refund due for two months and then on the third month has a payment to make then any CIS already suffered cannot be offset and the CIS cannot be reclaimed until the end of the tax year - does anyone else have any further information as I ahve trawled HMRC website this afternoon to no avail (HMRC mention deducting it from PAYE but, not what happens if there is then a credit on the account)and I have a number of clients that this may affect.

RebeccaBenneyworth's picture

A few replies

RebeccaBenneyworth | | Permalink

I'll start with the last question from kouloura. When PAYE and NIC due as reported by the FPS's in the month is to be reduced by a CIS offset by a company then an EPS is filed between 6th and 19th of the month to indicate how much CIS is to be offset. However, this cannot generate a refund, and the process (such as it is) for recovering CIS due for repayment will not alter - it will be claimed at the end of the year. One issue I'm not quite clear on is how as there won't be a P35. I'm wondering if the EPS will generate a carry forward amount on a cumulative basis.

You're right about month 3 in your example, as the only provision under RTI is to allow CIS suffered in a month to be offset against PAYE and NIC due for the month. I'll check back to the CIS legislation later to see whether this is technically correct.

Next point - the minimum wage point from mrcreosote. If the company is the employer, then a comapny does not have family members (as it is not a natural person) so the exemption from minimum wage for family members does not apply. It can only apply where the employer is an individual.

Now to the confusion over directors. John quoted me on the issue of minimum wage, and without the link the quote is misleading. John has now put the link in. So minimum wage not a problem (and wouldn't be in any event as this data won't be used for that in any event). As far as reporting etc is concerned, the rules are the same for directors as they are for anyone else. If there is an FPS to report for one employee then everyone else who is paid must be reported.

Turning to the annual scheme and reporting at the year end. The problem with drawing the money through the year and reporting annual ampount at the end of the year is that it does not comply with the on or before rule. If you know that your monthly drawing includes salary then you need to report it on a monthly basis as drawn. You could run a monthly payroll, or run a few months in advance (for example months 1,2,3 in month 1). While there are no penalties at the moment, the year's grace will soon slip by!

Drawings before (annual) payroll

John Snowden | | Permalink

It seems to me that, were the director(s) properly briefed, understood that - and also documented that - any payments made other than the credit of the actual net pay per payroll were LOANS, then the annual approach might work fine, would it not?

Another fine mess    2 thanks

Ian McTernan CTA | | Permalink

This is sounding more and more like a Laurel and Hardy show all the time.

Who exactly benefits from this new system?  Certainly not hard pressed employers who will now have to spend even more time and resources dealing with a system that the Revenue will not be able to process or handle, leading to many fines being issued and contested.

Great way to put off potential new employers- show them a couple RTI discussions, they will decide not to bother expanding if it means having to cope with all this rubbish.

Here's what to do with your above LEL but not paying NIC directors (£7200 or so).  When you run the end of year stuff on the Revenue's free end of year software, run April's RTI submission for that company too, include a payment of £7200 in April, and try and tell the system that is the only payment for the year.

Use HMRC's basic PAYE tools- I'm not even sure that you can use this for multiple clients as usually I use the filing only option on my agent's panel.  Maybe someone can confirm how or whether this is possible?

And this:The RTI-ready version of Basic PAYE Tools for 2013-14 is not yet available.  Less than a month to go for everyone to move across to the new system and no way for the average employer to try it out and take a look before it goes live.

​HMRC's head in clouds department dreamed this up, envisioning multinationals with huge payroll departments and dedicated hotlines for them to talk to technical experts to resolve any issues- meanwhile down at the coal face ordinary joe public and one man bands will have little to no chance come April of getting it right.

Maybe someone ought to be running a proper ad campaign and supplying employers with a hell of a lot more printed information- as sending a one page notice with 'see our website for further details' will have been missed by the vast majority who actually have real live businesses to run and don't have the time to spend hours searching around and/or reading up on some new reporting system that benefits them not at all.

Marmite's picture

If no FPS in a month do I still need to submit an EPS?

Marmite | | Permalink

The course I attended yesterday seem to suggest that if no FPS was submitted in a month then an EPS submission was still required to confirm zero payments due to HMRC.

If this is the case would this not scupper the idea of running - say a quarterly directors payroll in advance (as suggested by Rebecca)? Therefore no real saving in work as we may as well submit the FPS each month. 

Alternatively would it be the case that if we informed HMRC that we are operating a quarterly payroll for the sole director would they accept no EPS for 2 months each qtr?

Any ideas?

KH's picture

Only one solution for all

KH | | Permalink

Only one solution for all those directors drawing just above the LEL but below the PAYE/NIC threshold ... pay them monthly, same amount each month (£640 ???), get signed Minutes from each company agreeing this wage and payment dates, and then do a monthly RTI return for each director each month ... it's that, or submitting monthly zero-payment returns, or falling foul of some unsuspected (nay, purposely hidden) small print in this mad hotchpotch of a crazily bungled idea ... and not forgetting to charge all those little companies for the time and expertise involved in doing this ... say extra £50 to £1k pa depending on the company ..... and even at that level of fees it's not exactly going to keep them thar hungry howling wolves from the door.

Rats!

CIS suffered Month 2 Employee not paid until Month 3 ?

sutton | | Permalink

I have a couple of questions if anyone knows the answers please I would be grateful:

1) If CIS suffered Month 2 but no PAYE due and no employees paid does the EPS still have to be filed M2? Or EPS M1 showing inactivity for 2 months, Then FPS Month 3 (to pay employee) along with EPS giving CIS suffered figures for the quarter?

Which is the correct procedure?

2) Also will HMRC still accept the quarterly payments as not being late or will there be a tick box somewhere on the forms to notify them that the PAYE is being paid quarterly rather than monthly?

One payment....    1 thanks

Ian McTernan CTA | | Permalink

I'm not a payroll bureau.  I'm not interested in running a monthly payroll for each of my sole director companies- and neither are they.  In fact up to now I have just used the file only P35 system on HMRC's site.

They will receive one payment of around £7200 in April by way of credit to their loan accounts (the revenue's 'earliest of' favourites)  followed by nothing for the rest of the year.

It's not my fault the Revenue's system can't cope with this simple life.

According to this new system, am I right in thinking they now want me to 1. go out and spend money on a payroll system and 2. file 11 NIL returns for each company.

Where is the tick box and HMRC software saying 'director only, one payment' and why the hell didn't the working group not get this sorted out?

Euan MacLennan's picture

Duplicate question

Euan MacLennan | | Permalink

sutton wrote:

I have a couple of questions if anyone knows the answers please I would be grateful:

1) If CIS suffered Month 2 but no PAYE due and no employees paid does the EPS still have to be filed M2? Or EPS M1 showing inactivity for 2 months, Then FPS Month 3 (to pay employee) along with EPS giving CIS suffered figures for the quarter?

Which is the correct procedure?

2) Also will HMRC still accept the quarterly payments as not being late or will there be a tick box somewhere on the forms to notify them that the PAYE is being paid quarterly rather than monthly?

Didn't you like my answer to the same question you posted in Any Answers?

[EDIT]  Sorry!  I now see that you posted this question first and then, the same question on Any Answers.

Euan MacLennan's picture

Annual scheme

Euan MacLennan | | Permalink

Ian McTernan CTA wrote:

I'm not a payroll bureau.  I'm not interested in running a monthly payroll for each of my sole director companies- and neither are they.  In fact up to now I have just used the file only P35 system on HMRC's site.

They will receive one payment of around £7200 in April by way of credit to their loan accounts (the revenue's 'earliest of' favourites)  followed by nothing for the rest of the year.

It's not my fault the Revenue's system can't cope with this simple life.

According to this new system, am I right in thinking they now want me to 1. go out and spend money on a payroll system and 2. file 11 NIL returns for each company.

Where is the tick box and HMRC software saying 'director only, one payment' and why the hell didn't the working group not get this sorted out?

The Revenue can cope with your simple life.  You are wrong in thinking that you must file 11 nil EPS returns.  Ask for an Annual Scheme.

Ahhhh....    1 thanks

Ian McTernan CTA | | Permalink

I looked at your reference (for which many thanks) and see the glaring problem:

contact HMRC's Payment enquiry helpline0845 366 7816

Apparently they want me to phone a number and be on hold FOREVER in the vain hope that the person who finally answers can actually deal with the numerous companies that I act for and successfully turn all those schemes into annual schemes.  Having had experience of trying to get them to set up annual schemes in the past I don't hold out much hope.

I'm not even sure how I am supposed to run all those annual schemes using HMRC's basic PAYE tools, or what free software I should be grabbing to comply with HMRC's latest paperchase.  I have no interest in buying separate payroll software in order to report what I have previously been able to do once a year.  Nor do I want to waste hours and hours setting up these employers on a new system just so I can report a figure to HMRC.

Why isn't there a checkbox on their system, that we can check and turn a scheme into an annual scheme (agents only)?  It's not rocket science, and would save all this running around.

If I'm beginning to sound like a grumpy old man it's because I feel like one at the moment!

If anyone has any thoughts feel free to PM with suggestions, many thanks.

Starter Information/P46 and Permitted Work

cmiskin | | Permalink

There is a fundamental flaw in the P46 which has continued with the Starter Form. It does not allow for the situation where someone is claiming taxable Employment & Support Allowance/Incapacity Benefit and is working  - as they can often be entitled to under the Permitted Work rules. Employee needs a code for employment which restricts the personal allowance for  the amount of benefit but Box C and BR code would be better than the current situation where they automatically have a P800 underpayment once the year is reconciled if Benefit plus Employment income is more than PA.

Similar considerations apply where taxpayer is in receipt of ESA/IB and starts to receive an occupational pension.

Any chance of persuading HMRC to put a system in place that deals with these not unusual situations?

  

Euan MacLennan's picture

It is called RTI

Euan MacLennan | | Permalink

The P46 options of emergency code/BT/0T have always been a bit crude.  Under the old system, submission of the P46 often prompted the issue of a 'proper' PAYE code.  In future, under RTI, the issue of a new code should be even quicker.

Duplicate question - Whoops!

sutton | | Permalink

Sorry Euan I am new to participating and when I entered my Q here I realised it should have gone on 'Any Answers' hence the duplication. Thank you for your help.

New client, new registration - new problem?

angusnicolson | | Permalink

A new limited company payroll client came in today.  She plans to employ her sole employee on 8 April and pay her on the next Friday, but isn't currently registered for PAYE.

She doesn't want me to register her until early April, as her plans might change.

Without a PAYE reference how can she pay her employee at such short notice?

(I know that the recent delay in RTI moves this back, but imagine the same happens in early November).

The rest of our clients are ready to go, and I like to think I just about understand RTI, but ...

Euan MacLennan's picture

New client - no problem

Euan MacLennan | | Permalink

Tell her she has a choice:

  • you register her for PAYE now, so that the references come through in time to make the RTI submission due by Friday, 12th April, and if she changes her mind in the next 2 weeks, you will write to HMRC to cancel the scheme, or
  • you wait until she has taken on the employee and then, apply for registration, in which case she has no chance of complying with the requirement to file an FPS at the end of the week, or
  • you wait until she has taken on the employee, but to be paid at the end of the month with advances each week, and then apply for PAYE registration, in which case she should be able to comply with the latest RTI concession.  I assume that this is what you mean by "the recent delay in RTI".  However, this will only work for 6 months when you will have to switch to a weekly payroll and FPS if she is to be paid weekly.

New businesses - still a problem

angusnicolson | | Permalink

Thanks Euan, and the work around is clear for this particular employer, but it doesn't solve the fundamental problem of needing to get a PAYE reference before running a payroll and the fact that this can cause delays in compliance.

In the real world - which we inhabit - a guy walks in the door to ask you to form a company on Monday so he can start working for an agency on Tuesday; invoice on them Friday; get the money next Wednesday and pay himself on the following Friday.  Before you say it is unrealistic, we did 30 of these for one agency last year, and are promised another 50 this year.

The work-arounds aren't legal if the director really needs the money and the PAYE reference hasn't arrived, yet HMRC don't seem to have thought through the practicalities.

Are we expected to bend the rules to ensure 'compliance', or just tell the client he can't pay himself because HMRC say he can't?