Director's salary and PAYE

[Verness]

I started an LTD with another director and the business is becoming profitable. I'd like to pay myself a really small salary. I read on the official website that "You do not need to register for PAYE if none of your employees are paid £120 or more a week, get expenses and benefits, have another job or get a pension. However, you must keep payroll records".

If we pay ourselves below £120 per week will this mean that I don't need to register our company with HMRC as an employer? Do I need to do anything besides the usual record keeping?

This is somewhat confusing so I would appreciate your input

 

[Spur Support Services]

You are correct that you don't need to register as an employer if you pay under £120 per week.
However, you also won't be accruing any years of state pension benefit.
Plus your salary is a tax deductible expense for the company, which will reduce and taxable profit or increase a tax loss. Any tax losses can be carried forward to reduce taxable profits in future years, so by not considering your salary effectively, you may be increasing your overall tax bill when looking over a number of years.

You will still need to report your income in your personal tax returns, and the best course of action in respect of the above will depend on whether you have any other income sources.

Registering for PAYE and administering a payroll, doesn't have to be costly. HMRC have a free version that you can use ( https://www.gov.uk/basic-paye-tools ) .
Once your business becomes profitable it is a good idea to look at integrated payroll software solutions for your particular accounting package. These may cost a small amount each month, but the cost of the software is likely to be outweighed by the saving in time in making the correct postings to your accounting records and the reduction in risk of overlooking any Payroll related payments.

I hope this helps

 

[Scalloway]

If a person's income from employment is below £120 they do not need to go into PAYE if they have no other taxable income. £120 per week from an employment is what is called the Lower Earnings Limit (LEL). Above this you need to register for PAYE as the employee is entitled to an NI credit but no deductions are made.

The usual recommendation for compnay directors with no other income is to register for PAYE and pay themselves between the Lower Earnings Limit (LEL) and the Secondary Threshold (ST) where employers start paying National Insurance- £169 per week. This gives them a credit for NI which counts towards their State Pension and other benefits while costing nothing.

If the directors do not wish to withdraw their full wage they can credit to their Director's Loan Account (DLA) and withdraw it at a later date.

If any director who is being paid by the company has other PAYE income the company must operate PAYE.

 

[Newchodge]

You do not need to register for PAYE if none of your employees are paid £120 or more a week, get expenses and benefits, have another job or get a pension.

That is a very complicated sentence.

First question:
Does any employee have other PAYE-able income? That means another paid employment, a state or occupational pension or any taxable state benefits. It does not matter if that other income is less than £20 per month, if they have that income you must run payroll for all staff.

Only after you have sorted that question do you move to the amount they are earning with you.

If you do not need to run payroll you must not tell HMRC you are an employer. If you tell them they will demand payroll returns every month.

You must keep clear and accurate records of the name, address and NI number of everyone you employ and how much you paid them and when. You must keep a record of their dates and hours of work and of their paid holidays, in case you get a NMW or HMRC inspection. You should provide payslips at every pay point.

As has been mentioned above, paying a director below £120 per week may not be the most tax-efficient plan.