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Back dated directors payroll?

New ltd co

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Hi, I have a client, 2nd year into new Ltd co, first year only put money in didn't take any out, this 2nd year been taking out £300/£400 per week from business bank to his own bank. He has now asked me to set up payroll but I'm not 100% sure how to deal with the money he has already taken ie dla, dividends, backdated payroll (this bit I've not done before so). Any advice greatly received. Thank you.

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By JoF
19th Feb 2020 19:11

You cannot re-write history. He didnt report the payroll therefore its not payroll. Let that be a lesson to him!

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By johngroganjga
19th Feb 2020 19:15

One thing is for sure - that it’s not backdated payroll.

One thing that will help you to decide is what his loan account in the company looks like. If he put money in in year one it’s probably got a useful credit balance on it hasn’t it? Or was it all share capital?

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By Sandnickel
19th Feb 2020 19:21

Agree with the comment about rewriting history.

You have 2 months of the tax year so presumably can run payroll for that.

Also, do you have scope to declare any dividends? Depends on the profitability of the company.

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RLI
By lionofludesch
19th Feb 2020 19:41

As he's a director, no problem running a big wedge now for him to catch up on his 2019/20 allowance.

Say, £7700 in Feb, £700 March.

But that's not the same as £700 every month, in terms of timing. If he was overdrawn in the past, he's still overdrawn in the past. The £7700 won't take effect until Feb 2020.

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By atleastisoundknowledgable...
20th Feb 2020 08:08

If the PAYE scheme hasn’t been set up yet, you can apply for it to be backdated pretty much as far back as you want & process all of the RTIs that have been ‘missed’.

I may or may not have done this a few times. Possibly if we’ve forgotten to set up a scheme, or just as in your situation.

JoF/John/Sand/Lion - just saying like.

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Replying to atleastisoundknowledgable...:
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By JoF
20th Feb 2020 08:47

The farce of RTI.....again.

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Replying to atleastisoundknowledgable...:
RLI
By lionofludesch
20th Feb 2020 08:56

Well said.

Though I'm not sure this will affect the OP's case. Depends on the year ends, upon which we have silence.

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Replying to atleastisoundknowledgable...:
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By Lauren.Hawkes
26th Feb 2020 11:43

Would that not potentially raise a penalty for submitting late returns, even with 'a reasonable excuse'!?

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Replying to Lauren.Hawkes:
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By atleastisoundknowledgable...
26th Feb 2020 15:12

Lauren.Hawkes wrote:

Would that not potentially raise a penalty for submitting late returns, even with 'a reasonable excuse'!?

Never had that.

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Replying to atleastisoundknowledgable...:
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By JoF
26th Feb 2020 15:16

How far have you been able to go back? Just to the start of the tax year?

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Replying to JoF:
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By atleastisoundknowledgable...
26th Feb 2020 17:23

JoF wrote:

How far have you been able to go back? Just to the start of the tax year?

I have been into a prior tax year. Having done the SATR & YE for the year before that I didn’t go back further, but they would’ve let me. I pretty much always go back until the latest filed thing (SATR, co accts).

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Replying to atleastisoundknowledgable...:
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By JoF
26th Feb 2020 17:26

Thanks AtLeast.

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By Justin Bryant
20th Feb 2020 13:56

The solution to this has been mentioned here many times before. If you treat it as a loan and then write it off, voila. It is then PAYEable at that later point.

https://www.accountingweb.co.uk/any-answers/sole-director-salary

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Replying to Justin Bryant:
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By Jdopus
21st Feb 2020 12:16

I have read an article arguing that theoretically, it should always be treated as a Dividend rather than as PAYE income (even in a situation where no reserves are available)

https://www.taxinsider.co.uk/writing-off-directors-loan-accounts-a-surpr...

May be a risky case to try making to HMRC in practice though.

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Replying to Jdopus:
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By Justin Bryant
21st Feb 2020 14:50

It says the opposite (and it agrees entirely with me):

"That’s where the idea of writing off overdrawn director’s loan accounts, rather than crediting those accounts with ‘income’, can provide a perhaps surprising extra planning flexibility."

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Replying to Justin Bryant:
Psycho
By Wilson Philips
21st Feb 2020 16:13

I agree - until such time that HMRC get fed up, change their mind, and try to invoke section 447.

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Replying to Justin Bryant:
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By atleastisoundknowledgable...
21st Feb 2020 16:31

Justin Bryant wrote:

The solution to this has been mentioned here many times before. If you treat it as a loan and then write it off, voila. It is then PAYEable at that later point.

https://www.accountingweb.co.uk/any-answers/sole-director-salary

But then you’re suffering increased NI from if it’s spread out over the year.

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By john hextall
26th Feb 2020 14:12

Set up a payroll.
Pay him about 8k in February and some more in March.
This may generate a small NI liability but you will not need to amend any RTI returns.
If the company is making a profit and he put in money in the form of a directors loan, he can take some of this out again.
He will have to decide how to deal with the balance - it can be split between salary , which will incur NI and PAYE above the threshold; dividend, which will attract 7.5% tax after the first 2k, and directors loan repayments, provided enough profit has been made.

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