Can a self-employed business owner with no other employees pay himself through a paye scheme submitting monthly RTI returns and then declare any excess profit from the business as self-employed income on his self-assessment tax return
30th Nov 2020
Self-employed proprietor and paye
Why is a self-employed owner not allowed to pay himself through a paye scheme?
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yes, go for it. Sounds a great idea.
No. Self employed kinda gives you a clue as to why.
Effectively your asking why can't someone who employ themselves be employed again by themselves to receive income via employment of themselves.
But surely there is only one "self-employment", which is either paid and declared on a tax return at the end of the year or through a paye scheme that submits monthly return. One or two of my clients have suggested this would help them budget throughout the year?
No. Your client is self employed regardless of how you want to word it. There is only one person self employed, your client. If they want to budget they can do so in many other ways without the need for a paye scheme.
Jaysus - that's a shocker.
You have clients ???
Why?
Is it because you want to pay both EENIC and ERNIC
Or is it really because you want a mortgage
No, not at all. I am not suggesting it is the best system but can't work out why it is not possible. I have had differing replies from HMRC employees at various times - the latest saying it was not allowed - it seems more beneficial financially for HMRC than for the client!
a) an earlier HMRC employee said it was allowed?
b) more to the point you have posed this question to HMRC even once, let alone multiple times!
s.683 ITEPA 2003:
(1) For the purposes of this Act and any other enactment (whenever passed) “PAYE income” for a tax year consists of—
(a) any PAYE employment income for the year,
(b) any PAYE pension income for the year, and
(c) any PAYE social security income for the year.
Why would you want to pretend a self employed individual is employed?
Thanks but that doesn't really answer the question of why it wouldn't be allowed. I am not saying it is the best idea but not sure why it is not done.
Its the same reason that you don't pay corporation tax.
or French income taxes
Or SDLT on it.
Well, that was extremely helpful!
Glad to be of service.
It does answer the question - It isn't allowed because self-employment income isn't a) employment income or b) Pension income or c) social security income
Oh dear.
Perhaps you should re-consider the type of clients you look after.
Another helpful reply!
You need to read answers more carefully, but come on man, this is pretty damned basic stuff.
From your profile its clear you have given lots of help to folk on here, not. Just saying!
@Chesire, wait, this is an agent?
LMAO
Claims to be, but IMHO unlikely
Actually, you should seriously consider it.
Just take a step back.
Maybe an analogy will help. Say Jim owns a house. Can he rent it from himself?
Thanks, I understand what you are saying and can see the logic. The scenario I had from my client was whether he could have a paye system so that he could keep on top of his payments to HMRC with maybe a balancing payment at the end of the year. My advice was to put his tax aside or create a monthly payment to HMRC but he wanted to know if the paye system was allowable so that he didn't spend his "savings". It certainly would not be the best option financially but I thought I would put the query out there.
Yes. It's called paying on account.
I think your client’s question is whether there is a scheme to deduct tax at source from drawings taken by a sole trader similar to a PAYE scheme.
No there isn’t and sole traders’ due dates are bi-annual in arrears. You have already advised the client to either save the tax or pay HMRC monthly.
I can’t answer the “why not”.
Maybe that will come with MTD. Be careful what you wish for.
Hey, why not pay his wife and teenage kids instead?
"Clients?" - Scary.
why doesn't his client put money aside every month. Maybe using a post office savings book.....ten shillings a week, like granny taught us to do.
He (the client) doesn't want to risk spending it in a weak moment.
It's a fair enough concern for some. And, while the question may seem laughable, there are times when we all get stuck in the trees and lose sight of the wood. So well done the OP I say for asking (no doubt knowing the replies would include a large element of mockery).
(That it's been an ongoing issue involving multiple calls to HMRC... hmmm, not so well done.)
To state the blindingly obvious, the courts have held that, generally speaking, the difference between an employment and self-employment is that the former involves a master/servant relationship. You cannot have such a relationship with yourself. So, the client either works for his/her clients as an employee (so they must operate PAYE) or as a principal (in which case no PAYE).
If it is just a matter of budgeting, they could perhaps use a separate bank account or does HMRC accept payments on account?
er...nothing...reply deleted.....
Would not recommend it at all
BUT get the 'cannot be trusted with my own money' client to send money to your client account.
And then say no when he wants it back
Can I thank everyone for their kind contributions, even the dismissive ones. I am indeed a little long in the tooth and realised my folly soon after posting. I have asked accountingweb to remove the post so as not to cause any further offence to your sensibilities. I shall toddle off to retire. Mery Christmas, one and all.
retire?
You and me both....soon.
I hope they don't. People have put effort into their replies. That should be recognised. Those replies need the context of your question to make sense. So let the thread stand.
(And FWIW this is not the only time I have come across the question that your client(s) asked you, so I reckon leaving this thread in place will help others. And I reckon that's a good outcome for others as well as you. I hope you agree.)
If you genuinely have clients then stop. RIGHT NOW.
It's not just your life you're affecting when you have no grasp of even basic principles.
Your client can set up a "budget payment plan" and make monthly direct debits to HMRC.
If it was legal to do that, we'd all be doing it.....
No - I wouldn't.
Along with many more, I would imagine.