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David J. Cox, ACPA, Eastbourne

Certified Public Accountant & Tax Consultant  

Unit 33, Green Street Industrial Estate,  1 Green Street, Eastbourne, BN21 1QN

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One of the most frequently asked questions about RTI is what will happen under the new system to small companies that only have directors with no PAYE/NI to pay,  but who receive a small monthly salary.

“Are they really going to have to submit their payroll every month under RTI,”

In reply, 12Pay’s Tom McClellan came up with a succinct summary of the situation: “If the company has no employees above the LEL in any week, *and* P46s are held for all employees with boxes ‘A’ or ‘B’ ticked (ie you have a declaration from them that this is their only job), then you don't need a PAYE scheme.

“The moment a single employee exceeds the LEL in any week, or a single employee ticks box ‘C’ on their P46 or refuses to tick any of the P46 boxes, you must have a PAYE scheme and report all employees, regardless of pay levels, to HMRC. This is already the case.

“From April 2013 the reporting will be a full payment submission (FPS) for everyone on every payment if the employer has a PAYE scheme. You won't need to think about the status of employees once you've got a PAYE scheme; just pay them all the same way, and (I guess) whatever payroll solution you use will file them all.”

Since then, similar questions have continued to roll in. To try and bring calm to the situation, this “RTI trouble spots” article examines the practicalities for directors under RTI and addresses some of the points raised so far.

The main problem for advisers is that the director may actually draw the cash and they are left to decide later how much of this is salary and how much is going to be dividend. If the director has an overall debit balance on his loan account, the amounts he draws and subsequently decides are salary payments breach the on or before rule (assuming that the total amount is in excess of LEL). This presents the risk of substantial penalties (of up to £1,200) in 2014/15 when the late filing penalties commence.

It would be sensible to decide on how much to pay the director, and when, and then prepare a payroll and RTI to reflect this; it could be monthly, quarterly or annual, but the important thing is to make payments of the amounts at the time stated on the RTI submission (at “date of payment”).

Remember that you can file a FPS at any time before payment is made, which leaves the option of running a salary for 11 months of the year in month 1, and making the payments on (say) 20th of each month. Alternatively advisers might run quarterly payroll in advance every quarter.

Of course it is possible to still pay the salary in one lump as an annual amount, but if running a payroll in March 2014 to record an annual salary of, say £7,500, a payment would need to be made to match. Making a credit to the director’s loan account would not count as payment for RTI purposes, as payment has already been made in advance. There is also an issue in potentially triggering NIC liability if the pay is drawn before the salary run, although this frequently won’t be a problem if the director draws less than the threshold.

Where the salary is “paid” by crediting to the director’s loan account which is in credit rather than overall debit, these problems largely disappear, although if a very small company does not actually write up books and ledgers this may be difficult to demonstrate.

Any other cash drawn against loan account would (assuming that the above has been done) then not be salary and could be regarded as a loan, which might subsequently by either repaid or cleared by a dividend. A file note could record this fact.

HMRC’s view is that number of hours for many directors will be 30+ on the FPS. In particular it has been confirmed to me that the hours data on the RTI will NOT be used for minimum wage purposes. Obviously if you KNOW that a director does very few hours you should report accordingly.

Where a director is to be paid in a single month and not in others, the employer may wish to file an inactivity report (and/or nil payment returns) so that HMRC is aware that no payments are due each month.

An estate plan is necessary if you want to ensure that your assets and loved ones are protected when you are no longer able to do so. Without a will, your heirs could be taxed heavily and the courts could decide who gets to raise your children and how your assets are divided. Lancashire Will Writers

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