Sole director, no PAYE scheme

No PAYE scheme required, but what now?

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Hi all,

New client. Sole director/shareholder. First year accounts (AP 31/3/22), etc. prepared by previous accountant. IR35 doesn't apply.

Previous accountant put £500.00 p/m salary through the accounts. Per HMRC guidance it appears that a PAYE scheme was not required as this was below the NIC LEL, and no other employees, etc.

Client was not asked by HMRC to submit a 2021/22 Tax Return, so did not do so. Level of salary and dividends resulted in no liability. 

Re. the level of salary then the client is clearly not getting any NIC credits so am proposing raising this to the required levels. This will mean registering a PAYE scheme.

My question is: What date should I put in for the following question: "Please enter the first pay day, or the first date you made payments of expenses or provided benefits to your employees"? If I put the 2021/22 date then will this create a problem vis-a-vis RTI submissions (or rather non-submissions)? Or should I put in the date from which the salary was increased going forward?

Trying to do the right thing by the client re. NIC credits but obviously don't want to put him in boiling water re. RTI submissions.

Thanks.

Replies (14)

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Scalloway Castle
By scalloway
06th Sep 2023 18:20

I would just start in the 2023/24 PAYE year. The client can make voluntary NI contributions for earlier years.
https://www.gov.uk/voluntary-national-insurance-contributions/deadlines

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By Hugo Fair
06th Sep 2023 18:37

I understand your dilemma ... and admire your reluctance to cast further aspersion on what seems, shall we say, an unusual/foolish approach by previous accountant.

As it stands, the only technically correct answer is to provide the relevant 2021/22 date - as otherwise any future enquiry will hone in on what will then be seen as a lie.

But you can't do what I was about to suggest (first thought syndrome!) i.e. belatedly file the 'missing' FPSs with a 'late reason' code - because by definition those months will pre-date the start of the new PAYE scheme!

So, whilst you could try an explanatory letter to HMRC (before or after receiving late filing penalty notices) ... have you considered amending that year's accounts to show the 'income' (for which there is no evidence) as, say, DLA?

A bit convoluted (and with costs) but you'd end up with a truthful / clean / no penalty status - unless others have other thoughts?

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Replying to Hugo Fair:
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By Eighties Kid
06th Sep 2023 18:58

I would put 6 April 2023 to optimise the salary. And leave the past as it is.

However the date they became an employee was the date they became a Director.

What would happen if you put that date? I don’t see how HMRC can require a scheme from inception when a Director may have received no pay? This is distinct from this question obviously but I also don’t see how they can require submissions when no PAYE scheme was required. Sorry if I have misunderstood.

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Replying to Eighties Kid:
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By Hugo Fair
06th Sep 2023 21:48

I'm agreeing with all your latter points - e.g.
* HMRC cannot require a scheme from inception when (the only) Director has received no pay; and
* they cannot require (RTI) submissions when no PAYE scheme was required.

But that doesn't help OP who is trying to answer the (typically unhelpful) question posed by HMRC: "Please enter the first pay day, or the first date you made payments of expenses or provided benefits to your employees."

FWIW the previous accountant has caused the whole problem ... if no income paid then no problem; and if income paid (but as is usual at/above the NIC LEL) then no problem with PAYE scheme established and RTI filed.

Hence my 'thought' that if no income was actually paid (see absence of scheme and RTI filings), then maybe the easiest 'solution' would be to correct the accounts to represent the facts?

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By Tax Dragon
06th Sep 2023 22:14

Is it HMRC's automatic position that filings are due from the first pay day, payments of expenses or provision of benefits? There's plainly no legal basis for that, and there have been no wrongdoings (or wrongnondoings) so penalties cannot possibly stick.

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Replying to Tax Dragon:
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By Hugo Fair
07th Sep 2023 00:08

It's much too late (and on too hot an evening) for me to go trawling through the precise legislation, but IF a PAYE scheme has been set up (or should have been), then any payment made by the ER that is subject to PAYE has to be included in an RTI submission by or before that payment.

However, it is classically sloppy HMRC-speak to refer to "payments of expenses or provision of benefits" in that context ... *without* making it clear that they are only relevant where their nature makes them subject to PAYE (which for instance with BiKs means where the benefit is registered to be 'payrolled').

The issue for OP's client is NOT that HMRC can make "penalties stick" for the (not really) 'missing' submissions prior to the PAYE scheme being established ... as quite obviously (based on the limited info provided) no such submissions were due.

However the wording of the question being asked as part of registering the PAYE scheme has not considered this scenario, leaving OP with the choice of:
* giving a factually correct answer that will (due to HMRC's automated software routines) result in penalties being issued that then have to be fought off; or
* giving an answer that won't cause all that unnecessary fuss, but won't be true!

I was trying to be cute (not a look that I've carried off for many a moon) by thinking of an alternative that avoids such a conundrum ... ah well!

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Replying to Hugo Fair:
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By Tax Dragon
07th Sep 2023 06:14

Perhaps my own question was sloppy.

What I was trying to understand was the significance of the question HMRC asks - ie what they do with the answer. If they have turned something like "from when do you need to register the scheme" into the one asked, that is beyond sloppy; it is actually appalling, because it's so wrong. And it cannot have been the question asked when RTI came in... or maybe it was [how could it have been changed to this since?], in which case how did people respond then? With the start date of the first employee? For some firms that might have been 100s of years earlier - and if people had responded thus, surely HMRC might have thought "oh that's a bit odd.... ah! Our question isn't quite right"

Conversely, if everyone now takes the obviously pragmatic approach suggested by all the other respondents here, will HMRC ever realise there's a problem with the question?

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Replying to Tax Dragon:
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By richard thomas
07th Sep 2023 09:44

As I’m in less hot Portugal and as an inveterate trawler, may I offer reg 67BA of the PAYE Regs in defence of HMRC’s alleged position.

Mind you, that position is at odds with the gov.uk statement that you don’t need a PAYE scheme where no tax or NICs is payable IF it is not possible to file an RTI return without a ref number for the scheme.

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Replying to richard thomas:
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By Tax Dragon
07th Sep 2023 17:43

In other words the law imposes a stricter position than HMRC enforce.

a) I thought they'd been told not to do that (after which telling [off] ESCs started to be enacted).
b) As I understand it, part of the reason for RTI was HMRC having information for UC purposes.

So on what basis can they not require registration and reporting per that reg?

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Replying to Tax Dragon:
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By Hugo Fair
07th Sep 2023 19:32

You're falling into my trap (of expecting to find a trace of logic)!

As an example of the reality (and with a nod towards your comment re UC) ... the very first RTI spec (pre even Pilot) included a Data Item for the 'BACS Hash' value.
There is neither the time nor space here to explain that properly but, suffice to say, it was intended to provide an automated background check between the amounts being reported as Net pay per individual and the actual value of the bank transaction - as you say, primarily in order to trip up fraudulent UC claims.

At around (launch date - 500) I sat down with the project leaders and quickly established that they knew absolutely nothing about how BACS operated (including the need for SUNs etc) ... and more importantly that this data item (which was intended to be mandatory and central to the project) not only would not, but could not, be made to fly for well over 90% of ERs!
"Why didn't anyone tell us before?" was one of the more repeatable responses.

Anyway, it was quickly downgraded from mandatory to recommended ... and has sat in that useless limbo for over a decade (causing massive problems for DWP whose UC routines had been built on the assumption of its existence)!
UNTIL today when I notice it has, with absolutely no fanfare, slipped into oblivion ... being dropped from all of RTI from next April.

As usual I've gone well off-piste from the main topic ... but am trying to illuminate the degree to which HMRC are not even logically consistent between their own systems, let alone attempting to provide their 'customers' with a story that can be followed from one pillar to another.

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By Wanderer
06th Sep 2023 22:28

Just put a first payday within the next 30 days.

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By Software Seeker
07th Sep 2023 16:11

Thanks for the replies.

I called HMRC. They said register wef April 2023, that being the date that I am proposing to the client to up his salary. No penalties will be issued for prior periods as there was no requirement to operate PAYE then. He did seem to be quite sure about what he was talking (fingers crossed).

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Replying to Software Seeker:
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By Eighties Kid
07th Sep 2023 19:06

And, even though the Director started employment before this date then what do you put as the Director’s start date or did you not ask this? (Whatever your software will allow, lol)

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Replying to Eighties Kid:
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By Wanderer
07th Sep 2023 19:21

Put the date they were appointed a director, even if years ago.

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