PAYE blunder

[Welly]

I am looking for a bit of advice, maybe professional help, as I have found myself in a very bad situation due to an accountant's error. :(

I am now terrified of the possible fine I might be exposed to by HMRC. Please help if you have been in this situation.

I started my small LTD business in 2009. I knew little about accounting then, and did everything with a view of letting an accountant look into my books at the end of the year. In February 2009 I paid myself the first salary of £2000. I then paid more, but not exceeding the NI threshold that year. I took the rest out in dividends.

My accountant calculated the taxes and I paid them, but he did not even mention the PAYE at that time! So now I'm sitting in 2010, having actually two annual PAYE reports overdue. I have read that I will now pay £100 for each month since May 2009! This will be devastating!

I certainly registered with PAYE as soon as I found this out, and am waiting for their booklets, but what is to be done now? How can I reduce the damage?

Thank you everyone for whatever advice you will give.

P.S.

I know I should get a new accountant, and I will, just being afraid of getting someone like the one I had, who assured me that everything's gonna be OK. :mad:

[Williams lester]

Did you ask your accountant to look after the PAYE matters, as you say you registered yourself?

[Welly]

Did you ask your accountant to look after the PAYE matters, as you say you registered yourself?
No, I'm shocked and can't trust him anymore.

He told me he assumed I knew everything myself.

So I went to the HMRC web site and registered ASAP.

[OldWelshGuy]

I know this might sound odd, but I have always fon HMRC/Inland revenue a decent lot to deal with. Personally I would initiate contact with them directly and explain the situation. Ordinarily they would probably have let this go with a rollocking, but of late they appear to be focussing on revenue collection (probably from up high HMG needing to bring cash in etc)

[David Griffiths]

No, I'm shocked and can't trust him anymore.

He told me he assumed I knew everything myself.

So I went to the HMRC web site and registered ASAP.

To clarify this point. You didn't ask your accountant to deal with PAYE. Then you got it wrong, by not filing returns. So it's your accountant's fault, even though you didn't ask him/her to deal with it?

Yeah, right.

[KM-Tiger]

My accountant calculated the taxes and I paid them ...

How did you pay the tax if you did not have a PAYE reference?

[Tom McClelland]

In all fairness I think some of the responses are somewhat harsh.

Plenty of people start limited companies without understanding that they need to register for PAYE as employers in order to pay themselves. The OP went out and got an accountant, but he wouldn't know the right questions to ask about what he'd need the accountant to do.

It is more than a little surprising that the accountant who did his accounts and CT preparation didn't mention that since the company was paying the director a wage (which presumably went through the accounts) it ought to be registered with HMRC as an employer, and that there are filing responsibilities that go with that.

Just my 2p.

[Tom McClelland]

I started my small LTD business in 2009. I knew little about accounting then, and did everything with a view of letting an accountant look into my books at the end of the year. In February 2009 I paid myself the first salary of £2000. I then paid more, but not exceeding the NI threshold that year.

This is wrong. If you started the company in 2009 then in that employment you would not be entitled to a full year's NI threshold. You'd only be entitled pro-rata to that portion of the NI threshold that equates to the proportion of the year for which you were running the company. In this case under a quarter of the annual threshold) So it seems that there will also be an NI bill for that year, too. (IMO a decent accountant should have picked this up and warned you. Any of the accountants here would notice this, and tell you what to do, I think)

[mr. mischief]

I realise many accountants will say "Not me Guv". I am not one of those, especially with a start up. Even if they are doing their own PAYE and / or VAT, I check to make sure they're not falling into the pitfalls that lie in wait - like being late with end of year payroll returns, getting the flat rate VAT calc wrong, etc.

So if your accountant is claiming "Not me Guv" that may be strictly contractually correct but for me it's not good enough.

I'd throw yourself on the mercy of HMRC by explaining this as a misunderstanding between you and the accountant.

[Tom McClelland]

It occurs to me that there may also be a PAYE bill for 2009, depending on what you earned in other employments prior to this one (alternatively there might even be a refund!)

If you pm me with



The date you started the company and became a director
The exact total pay
The total pay and tax in previous employments that tax year (from the P45s from those employments, or from your last payslip in the previous employment)

Then I can work out what the total PAYE/NI/employers NI liability should have been in 2009 for you.

[Welly]

I know this might sound odd, but I have always fon HMRC/Inland revenue a decent lot to deal with. Personally I would initiate contact with them directly and explain the situation.

Thank you, that's a good advice.

[Welly]

How did you pay the tax if you did not have a PAYE reference?
To pay CT you don't need PAYE reference... Or do you?

I didn't owe any incoeme tax or NI, because the salary was below the NI threshold.

[Welly]

To clarify this point. You didn't ask your accountant to deal with PAYE. Then you got it wrong, by not filing returns. So it's your accountant's fault, even though you didn't ask him/her to deal with it?

Yeah, right.

As a matter of fact it was him who insisted that part of the company's profit should be taken out as salary. Initially I wanted to take all the money as dividends. I wouldn't be in all this trouble if I did. So I could be wrong here, but I do think he might mention that I can't pay salary without being registered with PAYE prior to suggesting that.

Anyway, blaming someone is not my point: I'm just looking for some ways to get me out of this ASAP. I'm prepared to accept the responsibility.

[CSBob]

I would have found myself in the exact same situation with my first Ltd business had it not been for one simple fact - my accountant warned me about PAYE and advised that I look into it, taking perhaps 30 seconds to explain that any Directors are just classed as employees. That's an entirely different concept to grasp when you've only ever spent years as a sole trader or partner (both, in my case).

It's so easy to say (in hindsight, or by an experienced / qualified person) "it's bleedin' obvious, mate", but the simple fact of the matter is that for someone completely new to all, it's pretty overwhelming. It's a veritable minefield of additional financial rules, regulations & procedures and we are relying on the person who is supposed to know about all this stuff - our accountant.

The OP obviously didn't contract his accountant to deal with PAYE, but surely any accountant worth his salt would at least make sure that their clients are fully aware of all their financial obligations, not just assume?

[Truemanbrown]

As a matter of fact it was him who insisted that part of the company's profit should be taken out as salary. Initially I wanted to take all the money as dividends. I wouldn't be in all this trouble if I did. So I could be wrong here, but I do think he might mention that I can't pay salary without being registered with PAYE prior to suggesting that.

Anyway, blaming someone is not my point: I'm just looking for some ways to get me out of this ASAP. I'm prepared to accept the responsibility.

The penalties for the late filing of the Form P35 is a £100 per month upto a maximum of £1200. If the PAYE or NI paid/payable is less than the penalty then the penalty is restricted to the PAYE and NI paid/payable. Therefore, if no PAYE or NI is payable then there is no penalty!

[Tom McClelland]

The penalties for the late filing of the Form P35 is a £100 per month upto a maximum of £1200. If the PAYE or NI paid/payable is less than the penalty then the penalty is restricted to the PAYE and NI paid/payable. Therefore, if no PAYE or NI is payable then there is no penalty!

I thought that may be the case. I've heard the same thing elsewhere but wanted to be sure.

Interestingly in that case the OP can actually make £75. If they file their P35/P14 for 08/09 by internet there is a £75 rebate from HMRC, regardless of PAYE/NI owing, and regardless of delay (as far as I am aware). So once you've got your PAYE reference as an employer apply for a PAYE Online login without delay and File By Internet when ready!

[bbbbb]

The penalties for the late filing of the Form P35 is a £100 per month upto a maximum of £1200. If the PAYE or NI paid/payable is less than the penalty then the penalty is restricted to the PAYE and NI paid/payable. Therefore, if no PAYE or NI is payable then there is no penalty!
Is this an extra statutory concession or is there a legislative reference :|
Thanks in advance

[Truemanbrown]

Go to the Employers' Compliance Handbook on the Revenue's site and go to ECH21020.

At the bottom of the page the following statement is made:


By concession the penalty is ‘capped’ to the total liability payable by 19th April following the end of the tax year, subject to a minimum penalty of £100.

[accountancyextra]

[quote=CSBob;1367884]It's so easy to say (in hindsight, or by an experienced / qualified person) "it's bleedin' obvious, mate", but the simple fact of the matter is that for someone completely new to all, it's pretty overwhelming. It's a veritable minefield of additional financial rules, regulations & procedures and we are relying on the person who is supposed to know about all this stuff - our accountant.[quote]

Absolutely right Bob, it is a minefield. Unfortunately, too many small business owners don't consult an accountant early enough (i.e. before forming the business). They assume that it's easy and "to save money" form the company directly through a cheap formation agent, saving themselves a few pounds in the process. What they don't realise is that by paying an accountant those extra few quid up front, they will be aware of all of their responsibilities and things they must do in order to operate as a limited company (in fact most accountants will actually set the PAYE scheme up for you as part of the process). As an aside, we make absolutely no profit on setting up companies for our clients...and I don't think many other accountants do, either.

They then operate for 12 months and then decide to appoint an accountant to "look at the books" and do the year end. By this point it's too late.

If you use this case as an example, I'd have spotted the lack of a PAYE scheme as we ask for the P35 as part of the accounts preparation process. However, that could even be too late to avoid a fine. We've had two cases recently where the business owner didn't approach us at start up but quickly realised that they needed help. We stopped them wasting £18,000 and £5,000 respectively. However, they were lucky, if they had delayed just a few months longer, it'd have been too late.

My point is, engage your accountant early and use them. Yes it may cost you a few pounds to do so, but it could well stop you wasting thousands or spending time worrying and trying to retrospectively sorting things out, like the OP.

Remember, an accountant should be for your business life, not just for year end;)

[CSBob]

Remember, an accountant should be for your business life, not just for year end;)

Words to live by - or at least to run a business by! It should be the No. 1 'Tip' on every start-up website out there, but tends to be waaaay down the list. Ho-hum.

[elainec100@cheapaccounting]

To the OP - IMO a 'full declaration' of the error should be made asap.

The new penalty regime will apply - it may be that a failure to notify penalty applies.

I am a bit confused about the dates quoted (started in 2009 & first salary of £2k paid would imply that paye would be due) but as every with a lot of these - more facts are needed to give the appropriate advice.

All I can say is contact an accountant who is experienced with dealing with such issues and can word a letter to HMRC pleading mitigation as to how the error arose.

[Welly]

I am reading the HMRC guidance on NIC for directors. And I am having difficulties with determining whether my husband who is taking an active part in the business can be considered director? Does he need to be appointed officially through Companies House to qualify for NIC calculations for directors?

I'm reading this part from the guidance:


Who IS a company director?

- a member of a board or similar body where the company is managed by a board or similar body

- a single person where the company is managed by an individual

OR, if a director as defined in either of the above is accustomed to acting under the instructions of another person, that person will be a director.

[elainec100@cheapaccounting]

I am reading the HMRC guidance on NIC for directors. And I am having difficulties with determining whether my husband who is taking an active part in the business can be considered director? Does he need to be appointed officially through Companies House to qualify for NIC calculations for directors?

I'm reading this part from the guidance:

yes he has to be appointed at co house to be a director

[Tom McClelland]

I am reading the HMRC guidance on NIC for directors. And I am having difficulties with determining whether my husband who is taking an active part in the business can be considered director? Does he need to be appointed officially through Companies House to qualify for NIC calculations for directors?

I'm reading this part from the guidance:
Of course as Elaine has already pointed out you aren't a director unless you've been appointed one by following the Co House procedure... but...

.... That guidance appears to be implying that anyone who supervises a director must perforce themselves be a director too. The appointment still needs to be made at companies house (but it is perhaps compulsory, if that guidance is to be believed). I'm not sure I've ever heard of that happening. But I can see that rules like that could prevent fiddles and scams where someone who is de facto a director could otherwise avoid their responsibilities.

[Welly]

OK, it's clear now, thanks!