Reply to: Start-up first tax return

[TheCyclingProgrammer]

You are right, sorry for the confusion. How about the other bits of the plan...does that make sense?

Thanks

I can't add much to what TF said other than that I believe that if you're paying yourself under the LEL threshold and have no other employees then I don't think you need to set up payroll for the 2013/14 tax year.

Regarding the P11D, as I said before it depends what the expenses are. Business expenses can broadly be broken down into two groups:

* Expenses you incur in the course of doing your job - for most contractors this is normally business travel or travel to a temporary workplace (including any related accommodation and subsistence) + itemised business calls. You incur these costs personally, your company reimburses you and you claim personal tax relief on the reimbursement through your self-assessment to avoid paying extra tax. These costs are normally reported on a P11D (along with other things like BIKs) unless they are specifically exempt (e.g. AMAP mileage payments).

* Expenses your company incurs - this will normally include staff remuneration (salaries and expense payments), accountancy fees, equipment, stationary, admin costs, employer's NIC. These should normally be paid for by the company directly and bills should be in the company name wherever possible however HMRC accept that sometimes an employee will purchase things on its employer's behalf. As long you have your employer's permission and its clear to the supplier that you are purchasing on your business's behalf then you are entitled to be reimbursed without their being any personal tax implications and these payments don't have to appear on your P11D.

Based on the above you should be able to work out what needs reporting on a P11D and what doesn't.

[Lewis Segi]

My mistake

If you are employed by a company, regardless of whether you own 100% of that company, you are NOT self-employed for tax purposes. You are an employee.

You are right, sorry for the confusion. How about the other bits of the plan...does that make sense?

Thanks

[TheFaQQer]

- Claim the approximately £10K costs originally paid by me. This would then be a cost to my company and I will keep that money. I think P11D does not apply to this case but I am not sure at all. Any help?

Without knowing exactly what the expenses were for, there is no way anyone can tell you whether you would need a P11D or not completing. For example, if there are any travel or subsistence expenses (apart from normal mileage rates), then they would need to be on your P11D.

If you needed to complete a P11D, then you have missed the filing deadline for the last tax year, which would incur a penalty.

- The last payment for my former PAYE employment was in Sept 13. I am planning to record a salary of £470/month from Oct 13 to July 14. I assume that since is is a different employer, I do not go over the LEL threshold and therefore not having set up a PAYE for this salary may be OK (it is the only salary in the company). Any comments here?

If you are completing a P11D then I think you have to have a P60 as well, which had to be issued by the end of May. Obviously the employee isn't going to complain, but it's something else to be careful of.

- For 2014/2015 I am already taking the steps to set the PAYE salary + dividends scheme, which I believe is the most efficient solution for remunerations up to £40K.

Make sure you do it right and have all the paperwork in place at the right time. If you are operating PAYE then you will need to be following the RTI guidelines as well.

Any comments/ideas/corrections on the statements above will be extremely appreciated.

Get professional advice from someone who is experienced with working with contractors. If you have an accountant, then they should be the one you are asking these questions to. If you haven't got an accountant, then there are recommendations in the sticky at the top of the Accounting / Legal sub-forum.

[TheFaQQer]

1) I am self-employed (and registered for self assessment too)

If you are employed by a company, regardless of whether you own 100% of that company, you are NOT self-employed for tax purposes. You are an employee.

[Lewis Segi]

More info

Thanks a lot CONTRERAS, TheCyclingProgrammer and TheFaQQer. I really appreciate you had taken your time to read the post and help me out.
In response to some of the questions:
1) I am self-employed (and registered for self assessment too)
2) The £15K profits are after reimbursement of the expenses/director loan
3) All expenses are genuine and have been well recorded

Having read all your comments, I guess the best option would be:
- Claim the approximately £10K costs originally paid by me. This would then be a cost to my company and I will keep that money. I think P11D does not apply to this case but I am not sure at all. Any help?
- The last payment for my former PAYE employment was in Sept 13. I am planning to record a salary of £470/month from Oct 13 to July 14. I assume that since is is a different employer, I do not go over the LEL threshold and therefore not having set up a PAYE for this salary may be OK (it is the only salary in the company). Any comments here?
- I will record this salary on my self assessment as a normal salary income.
- For 2014/2015 I am already taking the steps to set the PAYE salary + dividends scheme, which I believe is the most efficient solution for remunerations up to £40K.

Any comments/ideas/corrections on the statements above will be extremely appreciated.

Again, thanks all for your comments so far.

[TheCyclingProgrammer]

In the circumstances, and assuming no tax liability, I think I'd quietly sweep that one under the carpet.

I'm inclined to agree.

The OP had a job last year, though, so according to the HMRC document since it's a second job if they wanted to pay themselves a salary they would need to be operating PAYE and have declared the payments via RTI.

You're right but wouldn't it depend on when they decided to start paying themselves? IOW, as long as they back-date the monthly salary only as far as the first month after their previous employment ended and each payment is below the LEL there shouldn't be an issue - each payment can be shown as a credit to the DLA and they can just take it out when they want. They can then show it on their self-assessment as employment income.

Something that just occurred to me which might explain why OPs accountant hasn't mentioned dividends is that it wouldn't be possible to take any dividends that are taxed in the previous tax year without backdating them. They can obviously declare a dividend now but it would be taxed in the current tax year.

Either way something is going to have to be done retrospectively and if I was OP I'd be pretty annoyed with myself and my accountant for not sorting this before the previous tax year ended, when there would have been a bit more room for manoeuvre without creative accounting.

[TheFaQQer]

In other words, if the only person you employ doesn't meet any of the above criteria, there's no need to register for PAYE and operate RTI. If you employ somebody else who does meet the criteria, then you have to register for PAYE and you'd then be required to operate RTI for all employees.

The OP had a job last year, though, so according to the HMRC document since it's a second job if they wanted to pay themselves a salary they would need to be operating PAYE and have declared the payments via RTI.

[Contreras]

In other words, if the only person you employ doesn't meet any of the above criteria, there's no need to register for PAYE and operate RTI. If you employ somebody else who does meet the criteria, then you have to register for PAYE and you'd then be required to operate RTI for all employees.

WTCPS. If all are below LEL then you don't need to do PAYE/RTI. If any one is above LEL then you must do PAYE/RTI for all.

One thing that might be worth considering is if any expense payments that would normally be reported on the P11D (assuming no dispensation) would trigger the requirement or if its only if you make expense payments that are a BIK.

In the circumstances, and assuming no tax liability, I think I'd quietly sweep that one under the carpet.

[TheCyclingProgrammer]

I don't know whether this is another example of HMRC's wishes rather than the actual legislative requirements though.

I think it's more a case of badly written HMRC advice again.

My understanding is: if you're registered for PAYE, you need to report your employees' pay using RTI, no matter what they earn, as your link says.

However, you only have to register for PAYE if the following apply:

When you need to register
As soon as you first employ someone, you will need to register as an employer with HMRC if any of the following is true:
you're paying them at or above the PAYE threshold
you're paying them at or above the National Insurance Lower Earnings Limit
the employee already has another job
they are receiving a state, company or occupational pension
you're providing them with employee benefits

Source: HM Revenue & Customs: How to register as an employer

In other words, if the only person you employ doesn't meet any of the above criteria, there's no need to register for PAYE and operate RTI. If you employ somebody else who does meet the criteria, then you have to register for PAYE and you'd then be required to operate RTI for all employees.

That's how I'm reading it anyway. Can never be quite sure with HMRC.

One thing that might be worth considering is if any expense payments that would normally be reported on the P11D (assuming no dispensation) would trigger the requirement or if its only if you make expense payments that are a BIK.

[TheFaQQer]

I'm guessing that the OP's accountant is suggesting to keep salary below LEL for precisely the reason that it wouldn't need to be reported via RTI.

That's not what HMRC say:

Lower paid, temporary, irregular and casual staff
You'll need to report payments to all staff no matter how much you pay them, even those earning below the Lower Earnings Limit or those paid just once a year. So you'll have to enter details of these employees onto your payroll system. Be sure to get their employment status right.
If appropriate, set the irregular payment pattern indicator so HMRC doesn't assume that they've left your employment just because they haven't worked for a while.

Link

I don't know whether this is another example of HMRC's wishes rather than the actual legislative requirements though.

[Contreras]

a. OPTION 1: Claim a monthly salary of £470 since august 2013. Since iis below the LEL threshold, I haven’t had the obligation of setting up a PAYE scheme. Here I am unsure since, as I said, I have had other PAYE income for that same fiscal year, which may mean I am above the threshold anyway!

In answer to the final point above: No, because NI thresholds are per-employment.

That doesn't sound right to me. I thought that with the introduction of RTI, you need to tell HMRC at the time that the payment was made, so you wouldn't be able to do that.

I'm guessing that the OP's accountant is suggesting to keep salary below LEL for precisely the reason that it wouldn't need to be reported via RTI.

That's a good point although I guess a one-off salary payment could still be made as long as you set up payroll and run RTI correctly.

Salary as an annual lump sum is fine but technically it should be taxed as if wholly within that tax year. It would be possible with some creative accountancy to show it paid to the DLA during 2013-14 tax year and then withdrawn during 2014-15. Maybe the OP has a creative accountant.

[TheCyclingProgrammer]

Even if there aren't, then unless you have a dispensation, I think they need to go on the P11D and then you have another section on your personal tax return to claim back the tax.

It depends on what the expenses were but genuine company expenses paid for by an employee and then reimbursed shouldn't need to go on the P11D. But issues could arise if its ambiguous. Some things might be clearly on the company's behalf even if you don't have an invoice in the company name (e.g. accountancy fees and your accountant is only contracted to do YourCo's accounts, not yours). Some things might not (assets, or anything that HMRC rules stipulate need to be in the company name - could be tricky if you don't have invoices in the company name).

That doesn't sound right to me. I thought that with the introduction of RTI, you need to tell HMRC at the time that the payment was made, so you wouldn't be able to do that. Your accountant would be able to clarify that, though.

That's a good point although I guess a one-off salary payment could still be made as long as you set up payroll and run RTI correctly.

[TheFaQQer]

The company has made a profit of around £15,000 in the first year, not considering any remuneration.

Is that £15k after expenses? ie. you've factored in the reimbursement of expenses without actually making the payment back to the employee?

1) I have paid all the expenses of the company personally (around £10,000). Those moneys I can claim back without any tax issues.

Not necessarily that simple. You may need to declare the expenses on the P11D and then sort that out on your personal tax return to make sure that there aren't any benefit in kind issues here. Even if there aren't, then unless you have a dispensation, I think they need to go on the P11D and then you have another section on your personal tax return to claim back the tax.

2) On top of that, I could claim a remuneration via different options:
a. OPTION 1: Claim a monthly salary of £470 since august 2013. Since iis below the LEL threshold, I haven’t had the obligation of setting up a PAYE scheme. Here I am unsure since, as I said, I have had other PAYE income for that same fiscal year, which may mean I am above the threshold anyway!

That doesn't sound right to me. I thought that with the introduction of RTI, you need to tell HMRC at the time that the payment was made, so you wouldn't be able to do that. Your accountant would be able to clarify that, though.

b. OPTION 2: Claim that I have been subcontracted by the limited company for works unrelated to my role as director. For this I would need a services contract (well written to avoid IR35 issues) between my company and myself. I would obviously need to reflect this income in my self-assessment on one hand, and as a cost for the limited company on the other hand.

Never heard of that idea before, to be honest. I have absolutely no idea what that would give you, and why you'd need an IR35 friendly contract for work that you did via a company that you own. Perhaps whoever came up with that idea could explain more about what they are trying to achieve here - sounds like an unworkable fudge to me, but I may be missing something.

---

Did no-one suggest dividends to you? Looks like your accountant is missing some real basics and throwing in some extra nonsense instead. I'd ditch them and find someone who knows what they are doing.

[TheCyclingProgrammer]

Hi,
I have started a limited company on July 2013. It is a 1 shareholder/director company (myself, registered as self-employed). I’ve never set up a PAYE scheme for that period. The company has made a profit of around £15,000 in the first year, not considering any remuneration.

I assume you mean registered for self assessment; you're not registered self-employed (or you shouldn't be), you're a company director. You don't need to set up a PAYE scheme unless you're paying yourself a salary so not necessarily an issue there. I assume you mean £15k of gross profit before corporation tax?

I’ve had a previous PAYE job getting a salary until September 2013 of £23,000, so I guess my hands are tied for the allowance options. My personal bank account and the business account were the same for that period (I’ve set up a separated account for the business, which I should have done months ago!).

Using a personal account for your business is not ideal but at least you've rectified that. I hope you kept good records and books so there is a proper paper trail showing what is the businesses and what is yours. Without knowing what went in and out during that time there could still be possible implications.

1) I have paid all the expenses of the company personally (around £10,000). Those moneys I can claim back without any tax issues.

That really depends on what the expenses were. If they were genuine business expenses (i.e. "wholly and exclusively" for the business) and its clear they were for the company, not you (so things like hardware, software, stationary, accountancy fees, other assets etc) then yes your company can reimburse you without any personal tax or reporting implications. You might want to show the money you've spent on the company's behalf as a credit to your director's loan account in your company books (so its clear the company owes you money).

Things get complicated if you've bought stuff on the company's behalf but don't have evidence of this, e.g. no invoices in the company name (I wouldn't worry for small expenses like stationary etc. but I'd say its vital for larger purchases and even more vital if you ever wanted to reclaim the VAT).

Its also not true if the expenses were your own out of pocket expenses, particularly things like business travel, calls, accommodation and subsistence. Your company can reimburse you for these without any tax implications for the company general speaking, but they normally need to be reported on a P11D and there are potential personal tax implications for you if your out of pocket expenses do not meet the "wholly, exclusively and necessarily" rule or any special rules for things like travel. There could also be tax implications for YourCo for certain BIKs (NIC mainly).

2) On top of that, I could claim a remuneration via different options:
a. OPTION 1: Claim a monthly salary of £470 since august 2013. Since iis below the LEL threshold, I haven’t had the obligation of setting up a PAYE scheme. Here I am unsure since, as I said, I have had other PAYE income for that same fiscal year, which may mean I am above the threshold anyway!
b. OPTION 2: Claim that I have been subcontracted by the limited company for works unrelated to my role as director. For this I would need a services contract (well written to avoid IR35 issues) between my company and myself. I would obviously need to reflect this income in my self-assessment on one hand, and as a cost for the limited company on the other hand.

For option a, I believe the LEL threshold is per employer. I'm not sure whether or not you'd have to set up PAYE so I'll let somebody else answer that but setting up a payroll is fairly straightforward. You should certainly consider taking a minimal salary to use up any personal allowance you have remaining after accounting for your other job as salary payments will reduce your corporation tax bill.

I don't understand why your accountant would suggest option b as it would seem to do nothing but introduce numerous unnecessary complications. For starters it would probably mean you'd have to register as self-employed.

You're a shareholder of the company and if the company has enough distributable profit you can simply take a dividend and pay no additional tax until you reach the higher rate tax threshold. If you have £15k gross profit, then after allowing for CT that would leave you with £12k of retained profit that you could potentially take as a dividend without incurring further income tax. But you should seriously consider letting some profit build up in the company to provide a buffer or "war chest" for times when you don't have a contract.

[stek]

Hi,
I have started a limited company on July 2013. It is a 1 shareholder/director company (myself, registered as self-employed). I’ve never set up a PAYE scheme for that period. The company has made a profit of around £15,000 in the first year, not considering any remuneration.

I’ve had a previous PAYE job getting a salary until September 2013 of £23,000, so I guess my hands are tied for the allowance options. My personal bank account and the business account were the same for that period (I’ve set up a separated account for the business, which I should have done months ago!).

I would like to reduce the profit/tax bill on one hand and secure some payments for me on the other hand. I’ve had a number of conversations with accountants and they all differ on how to do this.
This is what I understood:
1) I have paid all the expenses of the company personally (around £10,000). Those moneys I can claim back without any tax issues.
2) On top of that, I could claim a remuneration via different options:
a. OPTION 1: Claim a monthly salary of £470 since august 2013. Since iis below the LEL threshold, I haven’t had the obligation of setting up a PAYE scheme. Here I am unsure since, as I said, I have had other PAYE income for that same fiscal year, which may mean I am above the threshold anyway!
b. OPTION 2: Claim that I have been subcontracted by the limited company for works unrelated to my role as director. For this I would need a services contract (well written to avoid IR35 issues) between my company and myself. I would obviously need to reflect this income in my self-assessment on one hand, and as a cost for the limited company on the other hand.

So I guess my question to the forum will be, are those statements and options explained above viable or have I been misled by my accountant and those things are too dodgy.
Any response will be extremely appreciated!

Thanks

What a supreme mess!

Speak to an good (read not cheap) accountant before you feck this up even more.