PAYE - Payroll - how easy?

[PermaShattered]

For months, I've been procrastinating about this and before i start, I want to know whether it's dead easy/complicated etc!

I'm sole director /shareholder and sole employee (registered for PAYE last year) and need to register for payroll for tax purposes.

I know i need to do it through HMRC but how easy is it? Thanks in advance!

Have you got an accountant for the company? If so, talk to her about it. If not, how are you going to deal with year end accounts for Companies House and HMRC? How are you going to make sure you pay the right amount of salary and dividend (1) to stay legal and (2) to not pay tax unnecessarily? Did you have earnings from another job in 2012/13? Did your company pay a dividend before today (new tax year) that maximised the use of your basic rate band last year, or are you not concerned about higher rate tax?

If you are happy with all of that, I'm not sure what you mean "register for payroll" if you "registered for PAYE last year". Do you mean that you registered the company for PAYE as an employer? Then that's all you need to do. Or do you mean you want to register to use HMRC's PAYE tools so that you can operate a payroll? I recommend you use proper payroll software - HMRC PAYE tools breaks frequently and is not user friendly - free options to run on your own Windows computer include 12pay and Brightpay, or you can use an online service like MyPAYE for £1 a month for one person. But if you only want to pay yourself up to the Secondary NI Threshold you don't need payroll software anyway.

Right:

1. Yes, i have an accountant but I'm not overly impressed (for instance, received a penalty notice for late/non filing of corporate tax return yesterday despite it all being in hand with him. I've emailed him and i'll see what he has to say.

1. When he did my return, he split the drawings i took between personal allowance (put that as salary) and the rest as dividends. But said i must sort out payroll for this year. (my end of yr is 31 March which is why i need to get this sorted)

1. Accountant told me payroll can be done online using HMRC tools.

1. Higher rate tax may be an issue for this year (2013-2014) but not sure how that works if pay salary to personal allowance and then draw remainder as dividends?

1. Yes, registered company for PAYE as an employer. AND need to operate a payroll to pay myself as sole employee the monthly amount to the personal allowance max for this year to avoid any problems with HMRC.

1. Not sure what you mean by the Secondary NI Threshold - accountant has never mentioned that to me.

1. Nor does he seem to know what i can do about child care vouchers so i still don't know what to do for me to personal benefit from these out of my company!

1. Lastly, on the subject of accountants, i was charged about £1200 for the year but that included having the company set up and filing returns. Is that reasonable?

Thanks SO much for your advice. I'll investigate those free ones but will await your response to the above!

I think he means the new rules about reporting paye on a weekly or monthly basis to hmrc using the new software they have made available.

This new rule comes into force today.

I'd speak to hmrc if I were you.

Dp had an accountant who just did all the basic stuff but could not get the return done in time and dp got fined. So we sacked him. Don't put up with an accountant who cannot even submit your tax return on time, sadly somee think it's ok to do so as fines are payable by the person whose tax return is done late, not the accountant (angry)

Child care vouchers don't work very well where you are the sole director and sole employee. You can't really do a salary sacrifice as the sacrificed part of salary is still subject to corporation tax, and you won't save national insurance on it if you only pay yourself a wage up to the personal allowance as you aren't paying ni on the rest anyway... The perk for employers from vouchers is to save ni on the sacrificed part of the salary.

Higher rate tax won't kick in if you pay salary up to personal allowance as you pay corporation rav on the rest, however they say you only end up better off doing that (because of the accountants fees) if you are earning over about 45k, because you are still paying tax on the dividends, just saving ni.

Speak to hmrc, we have always found their helpline very helpful, and it's better to get info from the horses mouth rather than (in dps case) and accountant who was only interested in his own fees.

Re the NIC holiday for new businesses.

HMRC says the following:

If you are self-employed and your business incorporates, ie becomes a limited company, this brings into being a new legal entity, although this is not necessarily a new business for the purpose of the NICs holiday. If your business is in receipt of the regional NICs holiday and incorporates, the new entity (the company) will not be entitled to the regional NICs holiday unless the activity or most of the activity of the company is different to that of the previous business

Now, I was a sole trader then incorporated - but it's essentially the same business activities. But this above refers to a previous/existing NICs holiday 'then incorporates'. So, can I claim this holiday or not?!

.... think i know the answer: I can't! Been trading since April 2011 so out of time. Oh well!

Wow.

1. Yes, i have an accountant but I'm not overly impressed (for instance, received a penalty notice for late/non filing of corporate tax return yesterday despite it all being in hand with him. I've emailed him and i'll see what he has to say.

If it is anything except "I'm really sorry for the oversight, of course I will deduct the penalty from my next bill" then it's time to say goodbye.

2. When he did my return, he split the drawings i took between personal allowance (put that as salary) and the rest as dividends. But said i must sort out payroll for this year. (my end of yr is 31 March which is why i need to get this sorted)

Every accountant I know would include payroll (for a sole director) as part of the service.

3. Accountant told me payroll can be done online using HMRC tools.

No, you download it onto your (Windows) computer. You can do end of year reporting online.

4. Higher rate tax may be an issue for this year (2013-2014) but not sure how that works if pay salary to personal allowance and then draw remainder as dividends?

Well in that case you will want to have extracted as much profit as possible out of the company in 2012/13 by drawing dividends that (when grossed up) take you to the top of the basic rate band, or that extract all the profit after tax accrued to the end of the tax year if less.

4. Yes, registered company for PAYE as an employer. AND need to operate a payroll to pay myself as sole employee the monthly amount to the personal allowance max for this year to avoid any problems with HMRC.

If you really want to use HMRC PAYE tools the link is here but you'd be better off with one of my other suggestions - or get your accountant to give you a decent service.

5. Not sure what you mean by the Secondary NI Threshold - accountant has never mentioned that to me.

The Secondary Threshold (£7,696 for 2013/14) is how much you can pay yourself without having to pay NI. But my comment about not having to use payroll software up to this point was wrong because you now (as of today) need to comply with Real Time Information which can only be done with payroll software.

6. Nor does he seem to know what i can do about child care vouchers so i still don't know what to do for me to personal benefit from these out of my company!

That's not good, he is costing you £583 a year.

7. Lastly, on the subject of accountants, i was charged about £1200 for the year but that included having the company set up and filing returns. Is that reasonable?

Assuming there are no complications you haven't mentioned you can get a better sercvice than you are receiving (including payroll) for significantly less than £1,000 including VAT.

MrAnchovy, as always, THANKYOU! Observations re my accountants all noted.

I've set up BrightPay - dead easy (thus far :) ) Now, I've just got to work out how payments are actually made!

Also - if you work 'remotely' for clients please DM me - if you capacity for another client....

Dp had an accountant who just did all the basic stuff but could not get the return done in time and dp got fined. So we sacked him. Don't put up with an accountant who cannot even submit your tax return on time, sadly somee think it's ok to do so as fines are payable by the person whose tax return is done late, not the accountant (angry)

But if it is the accountants fault you can sue him for it (he has Professional Indemnity Insurance to cover his negligence, although most fines will come under the excess) and/or complain to his professional body. You wouldn't put up with shoddy work from a plumber, so why should you with an accountant?

Child care vouchers don't work very well where you are the sole director and sole employee. You can't really do a salary sacrifice as the sacrificed part of salary is still subject to corporation tax, and you won't save national insurance on it if you only pay yourself a wage up to the personal allowance as you aren't paying ni on the rest anyway... The perk for employers from vouchers is to save ni on the sacrificed part of the salary.

You are misunderstanding the benefit - it has nothing to do with salary sacrifice or National Insurance, your employer can provide you with £243pm in vouchers which reduces the company's profit for corporation tax; there are no income tax or NI consequences.

Higher rate tax won't kick in if you pay salary up to personal allowance as you pay corporation rav on the rest, however they say you only end up better off doing that (because of the accountants fees) if you are earning over about 45k, because you are still paying tax on the dividends, just saving ni.

Sorry, I don't understand what you are trying to say.

Speak to hmrc, we have always found their helpline very helpful, and it's better to get info from the horses mouth rather than (in dps case) and accountant who was only interested in his own fees.

Well I agree that it is no use talking to a useless accountant, but HMRC won't help you work out a remuneration strategy (including CCVs, timing of dividends etc.) to optimise your after tax earnings.

Given the optimum remuneration strategy for a shareholder/director the maximum saving from the NI holiday is £63.40 per director in 2012/13, and then only if you have no other income. Worth having if you qualify as it is fairly easy to claim, but not worth losing sleep over.