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Tax Free Childcare problems directors pay

Tax Free Childcare problems with directors annual pay period

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One of my contractor clients has applied for the new Tax Free Childcare account.

They have run into a problem in that they have been told by HMRC that they do not qualify as they have not been reciving any salary and have not done so since April (the last RTI filing) and so it looks like they are not working.  HMRC have been told that this is simply because the £8,164 salary is on an annual pay period.  However they are not having any of it.  Looking at the regulations it talks in terms of salary 'received' in a 3 month period and so it appears that annual pay periods have not been contemplated. 

In order to resolve this for the client we would need to start running the payroll monthly rather than annually - but I really don't want to start running all our contractor payrolls monthly.

Anyone come across this and found a solution?

Replies (7)

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By SoL
23rd Nov 2017 12:06

I had the same issue with a client on an annual scheme. I couldn't find a way around it so I now do process the salary monthly.

I'd be interested to know if there is an alternative too.

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By Euan MacLennan
23rd Nov 2017 13:58

It is not necessary actually to run payrolls monthly. At the start of the tax year, I set up the payrolls and give the clients schedules of their net pay for the year ahead and of any PAYE payments. I don't produce payslips or payroll reports each month. I just submit monthly RTI returns using Moneysoft's excellent RTI Batch Processor. It takes about 10 minutes a month to file all the FPSs for 50 payrolls.

With Annual Schemes, you have to either make the payment in March at the end of the year, risking overdrawn DLAs, or in April at the start of the year, preventing any adjustment for the next 12 months. This Childcare problem just adds another objection to the list.

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RLI
By lionofludesch
23rd Nov 2017 13:59

Another anomaly which just confirms my dislike of annual schemes.

Never mind the time you save in doing these payrolls annually instead of monthly.

How much time do you spend digging yourself out of the holes you buried yourself in ?

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Replying to lionofludesch:
By jon_griffey
23rd Nov 2017 15:02

I find that annual schemes work fine. In most cases you can process the whole £8K on 6 April rather than the following 5 April which has the advantage of accelerating the deduction for clients with say a 30 April year end and gives a useful immediate credit to directors loan. I don't find any significant disadvantages.

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Replying to jon_griffey:
RLI
By lionofludesch
23rd Nov 2017 16:41

A quick browse through the Aweb archives will reveal plenty of other who do not.

Not to mention that you now have an objection of your own.

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By Carl London
23rd Nov 2017 23:19

Processing 8k on 6/4 usually creates a Month 1 PAYE liability doesnt it?
Ok it will even out by next 5/4 if nil payments processed after that but client would have received HMRC payment demands during the year which need explaining.
Also monthly is (usually) better for SMP and SPP eligibility I think.
I used to like annual schemes but stopped using them for all these reasons.

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Replying to Carl London:
RLI
By lionofludesch
24th Nov 2017 07:50

It's time not worth saving.

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