Sole Director, PAYE question

[Metso]

Hello,

I started my company earlier this year, Jan 2010 and started a contract on Jan 12 that will see me through to Nov 2010.

Up until this point I haven't paid myself and have been living of savings.

I decided that I didn't want to pay myself from Jan 12 to 05 April 2010 as I was PAYE and had overpaid taxes for tax year 2009/10 for which I wish to claim a refund.

After April 2010, my intention was that I was to pay myself the minimum amount of £475 per calendar month for which I get state pension credits and without incurring National insurance contributions and nil income tax. However up until this point I haven't been able to pay myself and I wondered if I would be able to back date this payment for the 4 months (Apr, May, Jun, July).

If this is possible to backdate this, how do I go about accounting this.

Thank you for your help

Metso.

[MM Associates]

Dividends for the 4 months may be an option if the company had sufficient profits.

[elainec100@cheapaccounting]

Show it as salary for each month and run your payroll from April 2010. I assume you have set up as an employer?

[Tom McClelland]

The OP is specifically asking about payroll payments.

You'll be a director of the company, and director's NI is calculated on a cumulative basis on annual earnings. So the only thing that matters, from an NI contributions point of view, is whether or not your annual earnings by 5/4/2011 exceed the lower earnings limit of £5044. The distribution of that payment into weeks/months/quarters is almost entirely irrelevant.

[Metso]

Dividends for the 4 months may be an option if the company had sufficient profits.

On this basis living off my savings could pay myself a dividend at the end of the tax year for the whole of the 12 months.

Regarding dividends don't I have to pay tax on this money.

Thanks
Metso

[Williams lester]

Dividends are paid after corporation tax, so the company will be taxed before you take a dividend. Plus if you are a higher rate taxpayer you will pay additional tax on your dividends.

You should consult your accountant to get an understanding of the best tax planning advice for you based on all your personal circumstances.

[elainec100@cheapaccounting]

dividends and salary explained here:

http://www.franklyaccounts.co.uk/fivesalary.php

I would recommend a salary to keep up your NI credits and take advantage of your personal allowance if no other income. Just dividends is not good tax planning.

[Metso]

dividends and salary explained here:

franklyaccounts.co.uk/fivesalary.php

I would recommend a salary to keep up your NI credits and take advantage of your personal allowance if no other income. Just dividends is not good tax planning.

I had a look at the website quoted above and feel accordingly that it would be wise for me to pay myself a salary equivalent to the 'earnings limit' (EL) thus giving myself pension credits etc and reducing my corporation tax.

I have registered with the Ir as an employer and have received the pack this week.

Considering this I go back to my original question about whether or not I can backdate my salary for April, May, June, July.

Thank you
Metso

[Tom McClelland]

I had a look at the website quoted above and feel accordingly that it would be wise for me to pay myself a salary equivalent to the 'earnings limit' (EL) thus giving myself pension credits etc and reducing my corporation tax.

I have registered with the Ir as an employer and have received the pack this week.

Considering this I go back to my original question about whether or not I can backdate my salary for April, May, June, July.

Thank you
Metso

I answered that question above:

You'll be a director of the company, and director's NI is calculated on a cumulative basis on annual earnings. So the only thing that matters, from an NI contributions point of view, is whether or not your annual earnings by 5/4/2011 exceed the lower earnings limit of £5044. The distribution of that payment into weeks/months/quarters is almost entirely irrelevant.

[elainec100@cheapaccounting]

Considering this I go back to my original question about whether or not I can backdate my salary for April, May, June, July.

Thank you
Metso

And I answered it above too:)

[Metso]

Sorry for the double post, Its because i'm now confused, having received the pack from HRMC for employers I was under the impression that I had to submit on a Monthly basis any Salary and NIC contributions even if the Nic were Nil.

Thanks
Metso

[Tom McClelland]

If you want to make 4 months payments, and you didn't do so at the time, just make a single payment now of 4x the normal amount. As you're a director no NI will be due from that.

[Metso]

If I were to pay for the back dated months how do I report that to the HRMC to avoid paying tax on this amount as this amount will appear more than the Earnings limit.

Thank you

[Tom McClelland]

You don't report earnings to HMRC until year end. Just the total of tax and NI due. Any correctly written and used payroll software in your situation will correctly report that as a director you don't owe anything if you pay yourself 4xthe monthly earning threshold now. Indeed you could pay yourself up to £1 less than the annual earnings threshold right now and you wouldn't owe any NI, but you would pay PAYE on that because at the moment you've only got 1/3 of a years PAYE free pay for work with.

[elainec100@cheapaccounting]

I would suggest the free HMRC course on payroll of you want to get into this more but if you run the payroll on the free CD ROM then it will become clear.

[KM-Tiger]

However up until this point I haven't been able to pay myself

Perhaps just to add that you don't have to have the cash to pay yourself the minimum salary, you can process the payroll and post the payment to your Director's Loan Account. Collect the money when cashflow permits.

It also wasn't obvious to me when I started out that there is no harm in paying the minimum salary and that action either leading to or increasing loss. The loss can be used later to reduce taxable profit. One's instinct is to minimise loss by not paying that minimum salary, but that's the wrong thing to do, as you only get one chance at the tax free personal allowance each year. If you haven't filed it by May 19th you've lost it, and that's a serious amount of tax free cash to have lost, even if you don't have it in the bank right now.

Obviously the above does not apply if you have other taxable income, but many in the start up phase of a Ltd won't have, and could lose out.

[ehup]

Is it right that you should register as an Employer with HMRC. I am under the impression that if you do not meet certain criteria!

When you need to register



You don't necessarily need to register as an employer once you take someone on. Check first that at least one of the following conditions applies to you. If any apply, then you need to register:

the employee already has another job
they are receiving a state or occupational pension
you're paying them at or above the PAYE threshold
you're paying them at or above the National Insurance Lower Earnings Limit
you're providing them with employee benefits
Have I missunderstood?

[David Griffiths]

Is it right that you should register as an Employer with HMRC. I am under the impression that if you do not meet certain criteria!

When you need to register



You don't necessarily need to register as an employer once you take someone on. Check first that at least one of the following conditions applies to you. If any apply, then you need to register:

the employee already has another job
they are receiving a state or occupational pension
you're paying them at or above the PAYE threshold
you're paying them at or above the National Insurance Lower Earnings Limit
you're providing them with employee benefits

Have I missunderstood?

The proposal from the OP was to pay £475 per month, which is above the NI Lower Earnings Limit? Did you undestand that? :)

[Williams lester]

Is it right that you should register as an Employer with HMRC. I am under the impression that if you do not meet certain criteria!

When you need to register




You don't necessarily need to register as an employer once you take someone on. Check first that at least one of the following conditions applies to you. If any apply, then you need to register:

the employee already has another job
they are receiving a state or occupational pension
you're paying them at or above the PAYE threshold
you're paying them at or above the National Insurance Lower Earnings Limit
you're providing them with employee benefits
Have I missunderstood?

The OP is proposing to pay £475 a month, this is over the NI LEL.

[Williams lester]

The proposal from the OP was to pay £475 per month, which is above the NI Lower Earnings Limit? Did you undestand that? :)

Beat me to it! :)

[elainec100@cheapaccounting]

The proposal from the OP was to pay £475 per month, which is above the NI Lower Earnings Limit? Did you undestand that? :)

The OP is proposing to pay £475 a month, this is over the NI LEL.

echo in here today:)

[Williams lester]

echo in here today:)

We are probably in different time zones :D

[elainec100@cheapaccounting]

We are probably in different time zones :D

or planets :D:D:D:D

[David Griffiths]

We are probably in different time zones :D

Down in Cardiff, that's not surprising. ;)

[ehup]

Oh Bother, think I'm asking that if you pay yourself £1 below the minimum threasholds you dont have to set up a payrole or register...is this correct?

[Williams lester]

Oh Bother, think I'm asking that if you pay yourself £1 below the minimum threasholds you dont have to set up a payrole or register...is this correct?

But if you pay below the LEL you will not receive NI contributions.