We recently took on a client from a very large competitor. Obviously RTI is new to all of us but I can't understand whether the way this accountancy practice is operating works or not.
The client is a limited company where he is the sole director / employee. It seems that in April 2013 the accountancy practice ran a payroll for the year and told the client to take £750 per month. I have what looks like a sage print out from them and his bank statements confirm the payments have been taken. When I called them to ask about his RTI submissions they said that he is up to date with NIL monthly submissions and then in month 12 their plan was to submit one salary payment for the year. They said he was registered on the annual scheme.
So I'm now confused. If he is on the annual scheme why submit a monthly return? And as he is paying himself a salary monthly (which they know from running his payroll in month 1) then how can he qualify for the annual scheme in the first place?
All of the clients we do payroll for match this profile and so I'm really keen to work out the most time efficient way to manage RTI which won't incur penalties come April 14!
Will you share your thoughts with me please?
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Accountancy services for contractors, freelancers and the self-employed.
If the salary was under the reporting limit, (£640 a month), no scheme is necessary at all.
If over the limit, which £750 is, you can set up payroll on "directors cumulative method" and post one bonus for the year in March. Setting it up this way, means the software looks at the year to date, rather than just assuming the monthly free pay.
If there are no payments in the year, and they post £9000 in one go, it will calculate no tax as under PA (this assumes normal tax code) and then calculate the NIC - which would amount to the same as what would have been paid if they posted £750 a month.
Hope this makes some sense! I am not a payroll bod, this is just my simple understanding of it. Someone with more experience should be along to soon to explain it more technically ! :)
If the client is on the annual scheme they can't take the money every month, because then they're lying about what is happening on their RTI submissions. The rules are strict; payments must be reported on or before the date of payment.
In my opinion, the only way of taking monthly money on the annual scheme would be to file RTI for the entire year up front in April, and debit the wages cost to the DLA. Then draw down the income monthly. That method works, but has the disadvantage that if the company has problems and can't pay the director, the salary is still deemed to have been taken for tax purposes.
Tom makes an excellent point, and this is one reason why I process monthly payrolls instead of annual - my directors prefer this.
There is scope to expand this discussion. It could be that the directors account has a credit balance, and so the £750 could be deemed, not a wage, but a drawing of funds owed. If dividend vouchers support a monthly dividend, it could be a drawing of that. There are various ways to approach this. As Tom was typing I was searching for this - it gives you a bit more to think about, when deciding how to go about wages.
If the client is on the annual scheme they can't take the money every month, because then they're lying about what is happening on their RTI submissions. The rules are strict; payments must be reported on or before the date of payment.
In my opinion, the only way of taking monthly money on the annual scheme would be to file RTI for the entire year up front in April, and debit the wages cost to the DLA. Then draw down the income monthly. That method works, but has the disadvantage that if the company has problems and can't pay the director, the salary is still deemed to have been taken for tax purposes.
Thanks Tom
That's what I thought but this is a major accountancy practice and whilst I don't believe in just copying the big boys they have the time and resource to explore all options, plus the risk of their reputation if they adopt a practice which will break the rules further down the line.
I'm not comfortable posting the whole year's salary in April for the reason you mention. I could post in month 12 and allow them to use the DLA in the meantime but there's obviously a £5k limit before there are tax implications. Instead could I post a fixed amount, say £641, for all my clients on the 1st of each month and then if they take more during the month correct it in the next submission?
My biggest problem so far is getting the clients to tell me in advance that they are about to take a salary payment (of course it doesn't matter right now but I want a smooth process in place so that come April 14 I don't have clients facing penalties). If I could do one submission for all clients on the 1st of each month it would make things very simple to manage. Is this possible with 12 Pay?
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Thanks to you Michelle too. Just one quick question I thought that everyone had to be included in RTI regardless of salary levels? We have another client with a low paid casual workforce (paper boys & girls) and I was under the impression that they had to be reported on too even though they work one hour per week on NMW.
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Accountancy services for contractors, freelancers and the self-employed.
I originally thought this, as I am not a payroll bod... but as I have come to understand it, where individual wages all fall below £7696, no scheme is necessary unless someone answers that they have another job on the P46.
I am sure if that's the full story, you've caught me on the hop, so I cant check right now, but no doubt someone will come along and put me straight :)
If a company operates payroll even if its for only one person, and all the rest are only paid a small amount as they are part-time even if they are students, then they ALL have to be on the payroll under the new RTI scheme. That's how I have read it.
I agree with Amanda, RTI has changed everything, and now everyone, no matter how little they are paid has to be reported. Partly this is because RTI will feed into Universal Credit, and obviously the lower paid/part time people are far more likely to be claiming Universal Credit than others.
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
If all of your employees invariably earn less than the NI LEL of £5668/year (£109/week), and none of them have a main job elsewhere, you don't have to run a PAYE scheme.
If any employee ever (even once) earns more than the NI LEL or you take on someone who already has another job then you must start a PAYE scheme if you don't already have one.
Once you have a PAYE scheme you must report all payments to all employees, regardless of earning level, before you make them. The only exception to this is that employees aged under 16 and earning below LEL don't have to be reported. (eg children delivering newspapers)
Hi Tom, thanks for correcting me on this limit. I did wonder how HMRC would know that anyone earning above the LEL but below the thresholds was entitled to NI credit for the year, if no payroll was being run!
So back to my ltd co directors, can I submit their RTI on the 1st of each month to meet the 'on or before' payment deadlines and then correct it the following month if the client takes more money than I have posted?
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Accountancy services for contractors, freelancers and the self-employed.
So back to my ltd co directors, can I submit their RTI on the 1st of each month to meet the 'on or before' payment deadlines and then correct it the following month if the client takes more money than I have posted?
Technically if they take pay in excess of what you've filed they're in breach of the RTI rules. The strict requirement is to file before payment. Saying the excess is a loan would technically depend on a loan agreement being in place, and interest calculations being done, etc.
I suppose there are two possible outcomes: Either (a) It will become clear over time that HMRC turn a blind eye to this kind of thing in single-director-companies or (b) Single director companies will have to become much more disciplined about distinguishing between the company's money and the director's money.
In the end you and the director can do what you like, and everyone is likely to get away with it unless there is a PAYE inspection. What no-one knows is how strong a view inspectors will take of this kind of thing.
