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Wages for director not on payroll

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I have taken over a few companies from another accountant and all of them have directors salaries of around £500-£700 per month and none of these are operating a payroll.  The figure is going on their self assessments returns though.  These are all companies that have no other staff (well a couple have wifes wages but thats a whole other issue).

I am going to advise that they have a payroll set up and RTI submitted each month so that they at least get their contributions towards pension etc.  

However, one of them told me that he was told that by putting the wages on his tax return gives him the pension record.  I'm pretty sure this is inaccurate but before I plough ahead, I would appreciate confirmation and peoples thoughts on this.

 

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RLI
By lionofludesch
27th Sep 2019 12:58

Oh dear.

Sounds like muddled thinking to me.

Yes, £700 would get the director a free pension. But he needs to submit RTI to get it, a fact which has possibly escaped the former accountant.

£500 is a bit more borderline. At the moment, you don't need to report £500 a month. But a couple of years ago, you would've needed to, so it depends how far back we're going.

Ask the directors what they want to do. If they want to believe your predecessor, grand. Less fuss and work for you. And they only need to get 35 years' contributions in so there's a reasonable chance it won't matter anyway.

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By Wanderer
27th Sep 2019 13:11

SJRUK wrote:

I'm pretty sure this is inaccurate but before I plough ahead, I would appreciate confirmation and peoples thoughts on this.

Confirmed.
They won't thank the previous accountant for this when it comes to pension times and will be looking who to point the finger at.
I'd probably (after discussion) lead them towards setting up an RTI payroll in almost every case. Takes 5-10 minutes per month and keeps you in contact with them throughout the year.
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Replying to Wanderer:
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By SJRUK
27th Sep 2019 13:24

The previous accountant died, so he's not bothered! The clients however are wondering who to believe at the moment I should think but as you say its very simple to set up and run each month.

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Replying to SJRUK:
RLI
By lionofludesch
27th Sep 2019 13:33

SJRUK wrote:
The clients however are wondering who to believe at the moment I should think but as you say its very simple to set up and run each month.

Give your advice and let them decide.

You can only advise people. You can't make them do stuff.

I've had a rubber stamp made saying "I Told You So" for just these occasions.

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Accountants & Tax Advisors
By Gladstone
27th Sep 2019 13:31

Sorry for my ignorance but I thought you needed to set PAYE to report in the self assessment. How did the previous account report payroll earnings without PAYE reference number?

Thanks
G

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Replying to Gladstone:
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By Wanderer
27th Sep 2019 13:34

You just use
000/oo
as the PAYE reference.
(Think 000/NN might work as well?)

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Replying to Gladstone:
RLI
By lionofludesch
27th Sep 2019 13:35

No, you can put in some made up PAYE reference on the SA return.

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By Paul D Utherone
27th Sep 2019 13:44

I know you can't check their PTA but maybe they should get set up for that, if only to check their contribution record and try to rectify problems sooner rather than later (when they want to claim pension but find that they have an incomplete record)

That HMRC has up to 4 different systems for PAYE, SA & NIC that barely talk to each other, and certainly cannot recognise a self employed cessation reported in a tax return to cancel the class 2 NIC requirement, would suggest that just putting salary details on a SA TR alone probably will not be enough to get a NIC qualifying year.

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By SJRUK
27th Sep 2019 13:45

He entered 470/470 (being our local district) as the PAYE reference and it seems to have been accepted!

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By Homeworker
02nd Oct 2019 10:35

You definitely do need to have a PAYE scheme and to file RTI returns to get the pension credits. The previous accountant clearly didn't understand that (or was just lazy). I use Moneysoft and it is quick, inexpensive and easy to use. It takes me maybe half an hour to prepare payslips and send reports for half a dozen payrolls (and no, I don't work for them).

Thanks (3)
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By petestar1969
02nd Oct 2019 11:37

Until recently I would have suggested you set the clients up on Xero and do the payroll through it, but then Xero decided to hike their monthly charge for the payroll module from £5 to £12 a month.

As others have said to get the NI state pension credits the RTI payroll submissions are needed. We pay all our company directors £719 a month in the current tax year.

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By Agutter Accounts
02nd Oct 2019 11:48

I always advise company directors of the minimum sum required where recording their wage is required, and necessary to qualify for State pension and other benefits. It is something they need to know, and something as an accounts professional you need to point out.

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By NewACA
02nd Oct 2019 12:09

Get the client (or you do it for them?) to check their NI history, that can be done online.

If the contributions are missing, you have just found yourself some extra chargeable work to go back to file the prior years payrolls.

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By CardiffAccountant
07th Oct 2019 20:04

I always advise the directors to have a payroll in place, paying the maximum available without suffering tax & NI.

Each month the directors receive a payslip and a RTI submission made.

That way, should ever HMRC come snooping, they will see all is in order.

I charge a very small fee for this, and directors know that we have taken a ‘belt & braces’ approach.

I use Moneysoft, and if well organised, takes about 30 mins for around 20 companies.

Hope this helps

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