Best Tax Efficient Way To Stay Under The Higher Tax Band In 2016/2017

[dagenheis]

Paying salary as an annual lump-sum isn't a problem. The issue is with when you do the RTI submission(s). The options are:

1. Inform HMRC that your company will use an "annual scheme" for salary, with annual submissions (you must also specify the month it will happen). This must be for all employees.
2. Submit RTI monthly, with nil amounts for those employee(s) on annual salary.
3. Submit RTI monthly with notional amounts and hold it in a loan account to be paid as a lump sum whenever.
4. Compromise: As for 1) but use a quarterly scheme, again must be for all employees.

In that case it probably makes sense to do monthly RTI/payments as we do that anyway. However, the accountant has proposed a different option - since the spouse is currently not on the payroll, she can be added as an employee in the final month and given annual salary. does not sound right?

What about Pensions AE - Can Ltd stay opted out of AE if the non-director shareholder salary is less than 10k per annum? i.e two employees in total - 1 director, 1 shareholder

Cheers

[SueEllen]

In that case it probably makes sense to do monthly RTI/payments as we do that anyway. However, the accountant has proposed a different option - since the spouse is currently not on the payroll, she can be added as an employee in the final month and given annual salary. does not sound right?

What about Pensions AE - Can Ltd stay opted out of AE if the non-director shareholder salary is less than 10k per annum? i.e two employees in total - 1 director, 1 shareholder

Cheers

Make your wife company secretary. She is then a company officer but has less power than the director. You also then won't have to set up a scheme for auto-enrolment. If you just made her an employee you would have to join a scheme which she can then choose to opt-out of, which is a headache.

You also wouldn't have to ever justify her salary legally as the job of a company secretary is to help the directors of the company carry out their legal duties. This would make the accountant's idea viable.

[dagenheis]

Make your wife company secretary. She is then a company officer but has less power than the director. You also then won't have to set up a scheme for auto-enrolment. If you just made her an employee you would have to join a scheme which she can then choose to opt-out of, which is a headache.

You also wouldn't have to ever justify her salary legally as the job of a company secretary is to help the directors of the company carry out their legal duties. This would make the accountant's idea viable.

Thanks, I will probably choose Company secretary route. Hopefully there will be clarity around EA in the mean while to determine 8040 vs 11k.

After reading similar thread, I am thinking that it's worth paying spouse salary in last 2 months of this year. What's the maximum I could pay in Feb and March if she is only a shareholder (not director)? I believe, it's 670 each to avoid employee NI?

She has been helping with Ltd affairs since earlier this year but not put on payroll yet as we had other career plans.


Also, Will I have to inform the Pensions regulator as the Ltd is current opted out of AE? But the staging date is in Apr 2016.

[WordIsBond]

After reading similar thread, I am thinking that it's worth paying spouse salary in last 2 months of this year. What's the maximum I could pay in Feb and March if she is only a shareholder (not director)? I believe, it's 670 each to avoid employee NI?

First, even though I know a few things about this stuff, I am not an accountant. Ask your accountant to confirm everything I say here.

Second, has she had any other employment income in the current tax year? If so, these numbers are affected by that. Also, if she has other non-employment income, that can affect things too, depending on how much. If not:

Yes, £670 each month would avoid employee NI. However, if she is a director you can pay a full £8060 for the year, director remuneration is on an annual basis. Can you if she is company secretary? I'm not sure. Definitely one to ask an accountant.

Also, does Companies House need to be notified that she's a secretary BEFORE you start paying money? Probably not, but I'd definitely have a board meeting with minutes showing she's been appointed. And I'd ask your accountant.

Finally, if you have already claimed Employment Allowance for the current year, you would technically be better off paying her £10600 if you can pay the whole annual amount like you can for a director, or £883 / month. You would have to pay employee NI at 12% but would save 20% on your corporation tax. Again, this is dependent on outside income, if she has ANY outside income at all (interest, whatever), this will put her into tax-paying territory. Again, talk to an accountant.

She has been helping with Ltd affairs since earlier this year but not put on payroll yet as we had other career plans.

I mentioned above that you may be able to pay on an annual basis. If so, forget what I'm saying in the next paragraph. If not, there may be a way to pay her for that work she has done earlier.

If you use Basic PAYE Tools to do payroll / RTI, they have a "mistimed payments" feature. You can say that a payment was due in January (or December, whenever), but wasn't paid until now. It will be treated, for tax purposes, as if it was paid back then. So if she was actually working, you could go back and pay her £670 a month back then. Most payroll software doesn't have this, I believe, but HMRC's free software does, so this may also be worth discussing with your accountant.

Also, Will I have to inform the Pensions regulator as the Ltd is current opted out of AE? But the staging date is in Apr 2016.

Probably not, but what can it hurt? "We opted out when we only had a single director. We have added another officer, a company secretary, but we still have no employees. The company will remain opted out, but we are notifying you that circumstances have changed." Always a good idea to cover yourself.

Edit: I see your accountant already suggested annual salary. As long as the payroll system in use can handle it, go for it. If he's doing your payroll/RTI, he obviously knows what he is talking about. If you are doing your own, ask him how you handle that in your payroll software. He's the expert.

[dagenheis]

OK the accountant needs to look into the AE exemption.

Although TPR link below focuses on the Director but I gather from the other link below that Company Secretary should be OK as long as she is paid for her fee as an office-holder rather then paying for PA salary for their services as a staff member (with no contract of employment) which is what SueEllen suggested, i suppose


Which director-only businesses are exempt from auto-enrolment? | Practicewire | Practice resources | ICAEW

What if I don't have any staff? | The Pensions Regulator

In regards to current year, you are right, the HMRC tool allows to add mistimed payment for Feb (with up to three parts) i.e. you could add Dec and Jan salary with Feb paymentl and NI will be apportioned accordingly. I am not sure if this can be repeated for 2 more previous months in March. Will need to call helpdesk to confirm all this but I might drop it to stay prudent to stay clear of any AE exemption issue.

[WordIsBond]

OK the accountant needs to look into the AE exemption.

Although TPR link below focuses on the Director but I gather from the other link below that Company Secretary should be OK as long as she is paid for her fee as an office-holder rather then paying for PA salary for their services as a staff member (with no contract of employment) which is what SueEllen suggested, i suppose


Which director-only businesses are exempt from auto-enrolment? | Practicewire | Practice resources | ICAEW

What if I don't have any staff? | The Pensions Regulator

In regards to current year, you are right, the HMRC tool allows to add mistimed payment for Feb (with up to three parts) i.e. you could add Dec and Jan salary with Feb paymentl and NI will be apportioned accordingly. I am not sure if this can be repeated for 2 more previous months in March. Will need to call helpdesk to confirm all this but I might drop it to stay prudent to stay clear of any AE exemption issue.

I can't speak to the AE exemption for company secretary, or whether you can pay annual salary / stipend for a secretary like you can for a director.

But I can tell you about Basic PAYE Tools. You can go back further.

Each mistimed payment can have up to 3 months worth of payments. It only allows one payment per day. But you can at least do this:
Payment 1 is three mis-timed payments, for November, December, January. You could do this today.
Payment 2 is February's payment. You can do that tomorrow, or next week.

I don't know, but I suspect, that you could do Payment 1 for Sept/Oct/Nov and Payment 2 for Dec/Jan/Feb. I don't know why you couldn't.

But I do know that you can have more than one payment in a month, and one of them can consist of three months of mistimed payments.

Of course, if you make her a secretary and secretaries can be paid on an annual basis, you can just pay her a single annual fee of £8060 and forget about it. But I don't know if that is allowed or not. If it isn't, then I would not do the mistimed payments thing to go back further than when she actually started helping with the company.

[dagenheis]

Interesting, i wasn't aware that we could do multiple mistimed payments within a month. Looking at the user guide, it only shows mistimed payment examples to process previous month as part of the payment in the current month. And I believe, this would not require late submission ticked as the previous payment hasn't been made.
So there are really three options


Option 1: submit mistimed payment for Dec/Jan/Feb so no need to add separate payment/FPS for Feb payroll
Option 2: submit mistimed payment for Nov/Dec/Jan tomorrow and Feb as regular FPS. Repeat the process for remaining four months in March.
Option 3: be safe, do nothing and process FPS for director as normal unless and until things get clarified . Then use option 1 or 2 in March for the previous months.

For next year, better to keep it simple and submit monthly RTI as normal.

Thanks for all your input. BTW, do you normally run this sort of peculiar stuff through your accountant for one-off advice or just using them for year-end filings?

[WordIsBond]

I assume the options you gave are all possible. Yes, for next year, just do it every month, especially if that's what you do with your own.

Thanks for all your input. BTW, do you normally run this sort of peculiar stuff through your accountant for one-off advice or just using them for year-end filings?

Depends.

Due to a banking problem (long sad story I won't bore you with), I ended up having to personally loan money to employees, to be paid back when they got paid. As a result, I faced a similar need to backdate payments which were legitimately due at the earlier dates. My co-director / better half discovered the mistimed payments functionality in Basic PAYE Tools, never talked to my accountant about it.

Other stuff I just know. My niche has a strong tax/accounting component (multi-country, too, I have to be competent in certain areas of taxation in multiple countries). As a result, some stuff I know. I've been doing it for decades. I also have experience as a treasurer of a voluntary organisation, which helped fill me in on accounting practices somewhat.

But employment related stuff is not an area of expertise, and I am very quick to ask my accountant. Other stuff, too. Taxation of benefits, relevant life plans (and the new CI cover), whether or not to payroll BIKs, handling of currency exchange, whether a mobile phone is a capital or revenue expense, what kind of self-improvement educational videos I can treat as tax exempt employee training, how to handle employment/payroll of a minor, handling a sub-contractor in another country. I've bugged him about all this stuff. I've learned a lot here and on some other websites as well, but I simply don't have time to train myself to know everything he knows. And I pay him for his expertise, so I'll ask. If I ask too many questions and he decides to increase his fees because I'm taking too much of his time, well, it is still worth it to me.

It's not that he saves me that much money on taxes. But he saves me that much on TIME, which is money to me because of the number of contracts / clients I have.

If I were a normal 8-5 bum on seat contractor and had free weekends / evenings, I might feel differently. But in general, if I don't know I ask, and if I pay for the privilege, it is worth it.

[SueEllen]

Company secretaries with no contract of employment don't qualify for auto-enrolment into pensions. linky

However you must tell The Pensions Regulator that you are exempt again.
The Pension Regulator linky

[dagenheis]

Company secretaries with no contract of employment don't qualify for auto-enrolment into pensions. linky

However you must tell The Pensions Regulator that you are exempt again.
The Pension Regulator linky

Yes that's the ICAEW link I posted earlier. I wonder why the accountant is clueless on this. Perhaps it's a hint to finally switch! Based on this link, it seems perfectly fine to pay £8060 to CS in 2016/17 or even higher if the EA remains intact for 1 director & 1 CS Ltd. But not to treat this as salary for PA duties.

for the current year, I informed TPR in June that my ltd is exempted from AE duties. Although the staging date is only effective from 2017, it's probably safe not to do any payments (from the rules standpoint rather than PAYE tool) because I am not sure:

1. if it's OK to make salary payments for PA work from July onwards if I informed TPR of exemption in June that nobody else is on the payroll.
2. the spouse is not made CS yet (neither CH nor TPR formally informed). Can we make payments for July-March for CS related even though CH/TPR are informed in March 2017.


Note: I am just thinking out loud to do due diligence at my end until the accountant comes back with specific opinion although hopes are low.