Payroll - Questions

[reachbesal]

Hi All

I have a few doubts regarding Limited Company Payroll, I tried looking up on HMRC/GOV website but could not find the answer.

Quick background, I have setup a limited company back in June 2016 which was dormant till Dec 2017, we got our first contract/client in Jan 2018 and reported HMRC that we are active (started trading).

We get all of our income/payment in our business account and we have not paid any salary from this account to the director or used it for any expenses

Based on above, I have few doubts as listed below

1) I have setup payroll (Capium) and added the director as employee, with start date of 2/Jan/2018 and date of appointment as director (Jun 2016).
I would like pay salary of £958 each for Jan, Feb and March to the director of the company tomorrow (5 April 2018)

Can I make three transfer into the director's personal account for £958 each (for the month of Jan, Feb and Mar 2018) from my business account and then Can I run payroll like this for Jan , Feb and March 2018 and submit the FPS? will there be a penalty for this?

or does it need to be a consolidated payment of £2874 and pay it as of today which will cover the payment for three months, if yes does it mean that I have to change the payroll and set the director joining date as of Mar 2018 and pay it for only the month of Mar 2018 in April 2018.



2) I have not been able to activate the PAYE service on HMRC portal yet as I have not received the 13 digit activation code. How ever I have register for PAYE as employer and I have PAYE ref and PAYE office ref from HMRC along with User ID and password to login to HMRC portal, is it sufficient to run the payroll and submit FPS after I make the salary payment to the director or do we have to activate the PAYE service on HMRC after we get the 13 digit activation code from HMRC



3) Expenses which we have incurred so far , were not paid from Business account ( I have paid them through personal account), can they be claimed as expenses ?



Thanks for reading my post and I will really appreciate your advice.

Regards
Basil

 

[SteveHa]

Directors are a little different from other employees, in that their NI is calculated cumulatively rather than each pay period. As such, whether a director receives all of their salary at the end of the tax year, or in nice equal instalments, the net NI will be the same.

The only possible issue is if any director is on a week 1/month 1 basis tax code. In that case, paying the whole amount on 5 April will produce a higher tax liability than spreading it out.

However, going back to January will, indeed, incur a penalty, not in respect of the late FPS for January (which is a penalty-free failure) but for the late Return for February. You could, potentially, appeal that penalty successfully.

However, if the tax codes are cumulative, just put the whole lot through today.

 

[reachbesal]

Thanks for your reply.

Do we have to wait for the activate code to activate PAYE service on HMRC portal so that we can run the payroll and submit the FPS?

I was thinking of doing the following.

Today I will pay the director's salary into their personal bank account and once I get the 13 digit code , activate the PAYE service and then

1) Submit the EPS for Jan and Feb , that I didnt pay the salary
2) And for March salary (which was paid today), I will include a lump sump salary upto £8000 which is within tax free allowance (also under the director NI allowance) and submit the FPS with note to HMRC that March salary paid in April was submitted late because its the first time we running the payrol.

Hope this works.

 

[Newchodge]

Make sure you pay it today. Tomorrow is next year.

As a new employer you have a grace period to submit your first FPS as it is recognised that you won't have the correct references, activations etc. This should not be a problem.

 

[SteveHa]

If you can't file simply because you are awaiting the necessary login details from HMRC then there's a period of grace (when you file choose option G). January and February came with no reporting requirement and so no penalties would be attracted anyway (and you don't actually need the EPS at this point, either.

Simply file a single EPS for March after the FPS (don't mark the FPS as final submission, but DO mark the EPS as the final submission) which should bring you up to date quite easily.

 

[reachbesal]

Thanks NewChodge and SteLacca

So just to double check, I will pay the salary today for the month of March (6th March to 5th April) from Business to Personal account and after i get the activation code.

1) First I will run the Payroll to complete the FPS for March salary paid on 5/4/18.
2) After the FPS is submitted to HMRC then file EPS as the final submission.


Hope thats the correct process.

I have following doubt, as we are using 1150L tax code which gives £11500 tax free allowance, when I try to put £5708 as salary for the month of march, its showing that PAYE TAX of £1340, I thought the payroll software (capium) should take the tax free allowance into consideration but it didnt not. I am using TaxCode 1150L on M1 basis with NI (A) category. Not sure why its doing that?

Please see the screenshot @ ibb. co / fp9YXH

Please remove the space to see the screenshot


please advice.

 

[Newchodge]

You should not be on a M1W1 basis. How did that get into the tax code?

 

[reachbesal]

Thanks for your reply. I got that from Capium , there is a option called "
Is this tax code operated on a week 1/month 1 basis " and I selected Yes, I will try to change it to "NO", and let me see if that works.

Can you please advice- when do we choose yes for - Is this tax code operated on a week 1/month 1 basis *

 

[Newchodge]

You enter the tax code notified to you by the tax office or generated by your answers to questions from your payroll software. It is not your choice.

For example you should be asked whether this is the employees first and only job in this tax year, whether they have another job, whether they previously hyad a job or were, or are in receipt of benefits this tax year.

I have no idea how capium works ( I have never heard of it) but payroll software should not give you a choice about tax codes.

 

[Newchodge]

I declare a vested interest as I run a payroll service, but are you sure that you understand enough to run your own payroll system?

 

[SteveHa]

To add to Cyndy's replies, have a look at https://www.gov.uk/new-employee-tax-code

 

[reachbesal]

I have changed without M1/W1 option and now if I select £5000 , i dont have to pay PAYE tax.

I have noticed some thing new , when I select "NO" on M1/W1 , then the payroll is showing minus - £582.60 for the month of Jan 2018.

I am not sure, if its due to the director was in a employment (working for another company as employee) and they worked till June 2017 where they earned £5791 for 3 months and paid tax for £582

It looks like the - £582 showing in Jan 2018 in the software, is the tax paid to HMRC from the other company when they were employed with them, which HMRC owe to the director as they were within the threshold.


But WE have not paid anything to the director for Jan 2018, Feb 2018 so far , we are going to pay for the month of March today (5-April-2018) for an amount of £5708 (which is remaining tax free allowance for this year).

So based on the above, do I have to make any changes to the payroll submission.

Please see the screenshot (** please remove the space from the URL below to see the screenshot **)

P45 data on software from previous employment- ibb. co/nE4Cbc
Salary/payroll showing -£582 for Jan, Feb £0 and Mar £5708 - ibb .co/iZcLUx

 

[Newchodge]

It sounds as if, based on the P45, the employee is due a tax rebate, which the new employer will have to pay, and later recover from HMRC.

 

[SteveHa]

Without meaning to sound rude, these are the most basic payroll issues, and you should have a grasp of them before processing payroll. If anything more complicated comes along you could find yourself with a whole heap of problems.

I'm all for people doing it for themselves, but you sound to be out of your depth, and may well benefit from outsourcing this. For a one man payroll, it shouldn't be expensive.

Perhaps ask Cyndy privately for a quote.

 

[reachbesal]

Many thanks Cyndy for your reply.

As the software is already showing Net Pay for Jan 2018 for £582 which we have not paid as we didnt run the payroll for that month and we didnt run for Feb as we were setting up with HMRC for ref number etc.

Do I need to run payroll for Jan 2018 and pay the director £582 today (tax rebate from last employer) submit the FPS for Jan 2018 along with Mar FPS when I get the 13 digit activate code from HMRC for PAYE service activation and then run EPS for Feb where we didnt make the salary payment, and file for EPS as final submission?

Thanks in advance

 

[Newchodge]

No. You only need to do what you originally stated you would do. Set up the payroll properly and run payroll in line with it for the 5 April pr 31 March. File it as soon as you can when you have the references.

 

[reachbesal]

Thanks Cyndy. I will do as you suggested, setup payroll correctly with tax code and run payroll today and file it when i have the activation code.

With regards to Jan (£-582) and Feb, after I have submitted FPS (for March) I should submit EPS as final submission?

 

[Newchodge]

There is no payroll being run in January and February. Ignore them. Run March properly, check it is right, submit FPS then submit final EPS.

 

[reachbesal]

Thanks I will do as you suggested.

I have put the salary for the month of march £5708 which was the remaining from tax free allowance into the director's personal bank account, now I will run March payroll and submit FPS then submit final EPS when i get the HMRC PAYE activation code.

With regards to Minus £582 as I am not paying that to the director, does it mean the director has to claim that from HMRC (as individual) ? Can you please suggest how to go about it.

 

[Newchodge]

PLEASE set up your payroll. It will tell you to pay the director however much you are paying them PLUS the amount of tax they have already paid that is due to be returned to them.

Please try to understand before one of us dies.

 

[reachbesal]

No more questions, thanks for your patience and for your advice.

 

[SteveHa]

You don't have the luxury of not paying the £582 refund to the director if it is properly due. When running payroll, as far as the tax goes, you are simply acting as an agent for HMRC and you MUST follow the rules. If you fail, you can be hit with penalties and, in the worst case, if fraud is suspected, much worse.

I only mention this because, as you have been advised, the payroll should be done properly, and the refund, if correct, must be made, and by refusing you are wilfully retaining crown money against the requirements of the law.

Please don't put yourself in that position.

 

[reachbesal]

Thanks for your advice SteLacca, I will make sure we are not getting into that position.

I am not an agent, I am trying to help my partner (who is the owner and director) without taking any financial benefit.

 

[SteveHa]

I didn't mean an "Agent" in the context of a professional advisor, but an agent for HMRC - i.e. you are doing what they need doing, and it must be done according to the law.

I appreciate that you aren't attempting to do anything underhanded, but perception is everything, especially when dealing with the vagaries of tax legislation.

 

[reachbesal]

Thanks SteLacca