Reply to: Credit salary to director's loan account

[northernladuk]

This just makes me sad.

I'd normally come to you first for questions like this

[Craig@Clarity]

Can salary be credited to the DLA or must it be paid physically?

Can be credited. Doesn't have to be physically paid.

Is there any time limit or deadline to the payment, after the RTI submission?

Nope.

Is a simple spreadsheet sufficient, showing the DLA credits/debits?

Yes. Or a good online accounting package like Freeagent.

[Iliketax]

The reason is for cash flow. Salary is a lump sum at the level where employer NICs to pay but no personal tax.

I have been advised that under RTI rules, the salary must be physically paid on or shortly after an RTI submission is made, that being no later than the following 5th of the month.

Even if this is incorrect advice it would be useful to know what if any basis there could be for it (NL: yes, I have asked!) - to try to understand the source of confusion.

A payment of cash is not required. A "payment" is defined for PAYE purposes here: Income Tax (Earnings and Pensions) Act 2003 Crediting a DLA is part (a) of Rule 3. A tax month ends on the 5th of a month. You can find out more about timing by googling: RTI full payment submission.

[NotAllThere]

It is not unusual to post money belonging to an employee to an account in the COA under their name, then make payments from there.

It was an email exchange with my accountant, about another matter. They said it's an RTI rule.

The trick then will simply be to do the RTI just before you make the payment in actuality?

[Contreras]

Mention to whom, and what was their response where you asked where this "rule" came comes from?

It was an email exchange with my accountant, about another matter. They said it's an RTI rule.

Why are you pissing around with DLA when you don't fully understand it? Just do everything away from it and keep it clean.

This just makes me sad.

[northernladuk]

Why are you pissing around with DLA when you don't fully understand it? Just do everything away from it and keep it clean.

[Paralytic]

Thanks everyone.

When I originally started out contracting I used to be religious about keeping everything as separate physical transactions. These days I typically credit salary, mileage and expenses (but not dividends) to the DLA as a spreadsheet exercise and then draw 'round sum' values ad-hoc keeping the balance positive.

Mentioned in passing that I would credit salary to the DLA due to cash-flow, and was met with the above along with a warning of HMRC penalties if they find out. I'm none the wiser about this "rule", or where the 5th of the month date comes from. I suspect there is an element of reality in there somewhere, but there's no worth in labouring it further.

Now I just have to get this image of a headless chicken running around dressed up as Judge Dredd out of my head.

Mention to whom, and what was their response where you asked where this "rule" came comes from?

[Contreras]

Thanks everyone.

When I originally started out contracting I used to be religious about keeping everything as separate physical transactions. These days I typically credit salary, mileage and expenses (but not dividends) to the DLA as a spreadsheet exercise and then draw 'round sum' values ad-hoc keeping the balance positive.

Mentioned in passing that I would credit salary to the DLA due to cash-flow, and was met with the above along with a warning of HMRC penalties if they find out. I'm none the wiser about this "rule", or where the 5th of the month date comes from. I suspect there is an element of reality in there somewhere, but there's no worth in labouring it further.

Now I just have to get this image of a headless chicken running around dressed up as Judge Dredd out of my head.

[jamesbrown]

I have been advised that under RTI rules, the salary must be physically paid on or shortly after an RTI submission is made, that being no later than the following 5th of the month.

Crediting it to the DLA is "paid" because it has been made available to the director in much the same way you might declare a dividend then credit it to the DLA and pay it later.

[Maslins]

This is absolutely fine. In practice it's what always happens, unless you physically pay the salary at exactly the same time the payroll is processed.

Ie there's two separate things:
- payroll processed -> salary owed to you, creates the creditor.
- payment of salary made to you, removes/reduces the creditor.

Doesn't matter if there's a delay of seconds or years between these. If salary is processed but not paid, it just builds up a creditor owed to that person. Of course with "normal" staff they'd get grumpy pretty quickly if they weren't paid, but where it's you/your company, you may have reasons for not wanting the cash now but still having the payroll processed now. That's fine.

[Contreras]

The reason is for cash flow. Salary is a lump sum at the level where employer NICs to pay but no personal tax.

I have been advised that under RTI rules, the salary must be physically paid on or shortly after an RTI submission is made, that being no later than the following 5th of the month.

Even if this is incorrect advice it would be useful to know what if any basis there could be for it (NL: yes, I have asked!) - to try to understand the source of confusion.

[northernladuk]

Except the OP appeared to be asking about salary from HisCo going into the DLA in HisCo (as opposed to using the DLA properly to move money into the company). That's just changing labels in the accounts; nothing wrong with that but curious as to why.

I reckon it's as simple as him just wanting to pay it off with money he doesn't need and doesn't want to transfer out and back in.

His accountant should have been is first port of call where he would have gotten the answer and more in a conversation rather than us running round like headless chickens.

[malvolio]

I was a director of a small company years ago that had serious cashflow issues.
DLA was used extensively to ease the situation.
As a contractor the only use I've had for DLA was to balance errors.

Except the OP appeared to be asking about salary from HisCo going into the DLA in HisCo (as opposed to using the DLA properly to move money into the company). That's just changing labels in the accounts; nothing wrong with that but curious as to why.

[Lance]

Can't think of any reason, legal or otherwise, to do so. Care to elaborate?

I was a director of a small company years ago that had serious cashflow issues.
DLA was used extensively to ease the situation.
As a contractor the only use I've had for DLA was to balance errors.

[CatOnMat]

Can't think of any reason, legal or otherwise, to do so. Care to elaborate?

One good reason is if LtdCo has an account which pays interest whereas personal current account does not (or not over a certain max amount) - assuming enough personal reserves no point in taking the salary out of the company bank account prematurely in that case.

As mentioned though tax would be due in the tax year applicable to that payroll run, rather than whichever (future) point at which you take the funds out to your personal bank account.