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Director's NI

Director's NI

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I got an email from a director on the 31st of March saying his IFA had adviced him to pay himself a salary of 7k. I had previously advised against this. The company was only set up in December so this would trigger an NI charge.
I initially made an error with the payroll and didn't enter the date the directorship started. (It was on easter Sunday I was trying to get the submission done surrounded by screaming kids)
I realised the error on Tuesday and submitted an updated fps and informed the client NI was due.
He is not very happy and doesn't want to pay it because the first payslip said otherwise.

Can he pay the NI and apply for a refund? His total earnings for the year is the £7000 so in the grand scheme of things he is under the threshold for the UEL. Or does this not work for directors?

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By MattG
10th Apr 2015 08:03

Pro-rata allowance

He won't be due a refund, assuming your software now has the correct details in the corrected NI payment will be the final figure.

Director's NI thresholds are pro-rata for the year in which they become a director, so in this case something around 1/3 to 1/4 of the primary and secondary thresholds (UEL will also be pro-rata, but I don't think that is the one you meant in this case), leaving £4-5k subject to NI, as I imagine your software has calculated.

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By AANM
10th Apr 2015 08:11

Thanks MattG that's what I thought but wanted to check before I have that difficult conversation. He won't be happy at all.

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By NHGlos
10th Apr 2015 10:10

I feel your pain!

I've had payroll situations in the past (although not with directors), where bonuses or a large pay rise has been given at the same time as a PAYE code change or very early in the tax year and the employee has not been happy with the tax result! Who do they blame...?

In this situation, yes you made a clerical error but the final result is the correct one, the complication is one of "shooting the messenger".

The director shouldn't have listened to the IFA and I find myself wondering why the IFA suggested it...?

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By MattG
10th Apr 2015 11:18

One more thing...

One thing you didn't ask about and I didn't mention before is the possibility of annual maxima applying - if he had other employment before December and paid a lot of NI in that employment he could be due a refund under the annual maxima rules.

http://www.hmrc.gov.uk/manuals/nimmanual/nim01251.htm

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By AANM
10th Apr 2015 11:34

Perhaps the IFA considered Annual Maxima
The email he passed on from the IFA said he will also receive a credit for NI purposes for the period he was employed by his company. I have never had any director have NI credit so IFA could have been referring to a separate company and had the annual maxima in mind.

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By MattG
10th Apr 2015 11:44

My guess would be that in referring to the "credit" the IFA probably had in mind that there was salary put through payroll sufficient to give a years credit for contributory benefits purposes, but it's possibly (s)he was referring to the maxima.

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By AANM
10th Apr 2015 11:42

NHGIos I am berating myself for doing the payroll on easter. I would have avoided this whole problem. I have considered paying part of it as a sign of goodwill and as further punishment to myself for working at Easter :-)

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10th Apr 2015 12:02

NO!

AANM wrote:

I have considered paying part of it as a sign of goodwill and as further punishment to myself for working at Easter :-)

Don't fall into the trap of thinking that him having to pay the correct NI is in any way your fault. It is his burden to bear and if the figure is correct then it is absolutely right and proper that he pay it. An initial clerical error by you has absolutely no bearing on what he owes and why he owes it. He does not have to pay the NI because you made a clerical error - he has to pay the NI because that is what he is due to pay.

Be firm. Explain the situtation and stress that the error in no way increases the NI due.

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10th Apr 2015 12:09

Don't pay

AANM wrote:
I have considered paying part of it as a sign of goodwill and as further punishment to myself for working at Easter :-)
This is not an additional penalty he has suffered due to your original error. This is a liability that he had all along that is only coming to light now due to you correcting your error. Not only that, but he has only incurred this liability because he ignored your advice against the salary figure used. He has not suffered in any way from your actions, and so any sort of goodwill gesture is inappropriate.

If he won't pay a liability that (subject to checking the annual maxima) has arisen solely because of his decision, then you should consider disengaging.

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