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Post Info TOPIC: Payroll Question


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Payroll Question


Hi Everyone,

I have a client who has recently gone LTD via the accountant, I am doing his payroll as I do his books as well and its makes sense for me to do it all.  Anyway I was told by the admin lady to pay him £2625 per month so he keeps under the 40% threshold.  I thought he could pay himself £589 per month as a Director with no NI and then pay whatever he wants to pay himself the rest in Divs.  He used to be a Sole trader and just withdrew a certain amount each month to pay his bills/mortgage and live on etc.  He use to withdraw normally once or twice a month and pay it into his personla account on line.  So I was going to get him to pay 2 separate amounts into his personal account one amount for the wages/Paye and the other amount for the Divs  I'm thinking that this is OK.  Can someone just clarify it for me as I think the admin lady has thought my guy is still self employed as a Sole trader and not a Director of a company?

Many thanks

 



-- Edited by Amanda on Monday 9th of May 2011 03:06:22 PM

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Amanda



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Hi Amanda,

Is trhe director actually caught under IR35 legislation in which case the alternate dividend route is not open to them (well not outside the remainder of the 5% turnover anyway).

Dividends should only be taken from profits where a company can quite merrily go overdrawn to pay salary.

Also, dividends should not be paid as salary (set amount monthly) or they are likely to be considered as salary by HMRC (I expect some to disagree with this statement but I've had it from the horses mouth that this is one of the things that they look at).

Think of dividends as paid against profits no less than quarterly and preferably half yearly.

It may also be that over a period (say three years) the director wishes their salary to show a certain amount for other reasons such as evidence for a mortgage application. Many institutions will consider a multiplier of salary but only one times dividends.

Before giving any advice to the client I think that you really need to know the accountants reasoning behind the level of salary that the director will be taking.

Hope that this helps,

kind regards,

Shaun.

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Shaun

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Expert

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HI Shuan,

No hes not caught under the IR35 rule, he is a subbie and sometimes uses other subbies himself and does all the CIS stuff, his wife does all of that no probs. He went from Self -employed to Ltd as he is getter bigger and was advised to do this by the accountant which I thought was a good idea anyway. Hes VAT reg has been for a long time, he is in profit so no probs there, I thought he could pay himself the PAYE of £589 net and then pay any other amounts say between £1K and £2K per month depending on how busy he has been, he that not correct then?
I have another client who pays himself Divs through the year and then at the end of the year the accountant deals with his PAYE, ie to use up his personal allowance and then puts the rest to Divs.

I am getting confused abit???

cheers

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Amanda



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Hi Amanda,

I was just trying to think of reasons why the accountant might give the advice that they did.

So, strike IR35 but keep hold of the idea about wanting to show a certain level of income.

On the dividends front its been a bone of contention for the last thirty years at least.

Dividends can only be taken against profits and one cannot pre-empt a profit. For example, a company makes £10,000 profit in the first half year and expects to make £20,000 profit in the remainder of the year. One could not after six months pay a dividend of £15,000 as £5,000 of that would not have been realised at the time of the distribution.

However, if the company has estimed that if will make £30,000 there is no reason that a salary cannot be paid based on that expectation even if such means that in some months the company will be in the red (overdraft facility allowing of course).

On the timing issue accountants will generally argue (and win) that there is no reason that a dividend cannot be paid monthly. However, why go through the hassel of being in a position that you have to fight to legitimise something.

Sometimes the approach with dividends will be to issue a dividend which is paid to the the DLA and then payments from the DLA are made throughout the period. Or vice versa, payments are taken from the DLA and then a dividend is declared against the amount taken.

The key though is that the dividend must be against profits available for distribution and although there is no legitimate reason that they cannot be more regular it makes for a somewhat quieter life (which I'm all for) is they are only declared at less regular intervals.

Hope that the above makes sense,

Shaun.

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Shaun

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The discussion in relation to dividends also continues in this thread :

http://www.book-keepers.org.uk/t42748764/paying-dividends-dont-want-to-take-another-thread-off-topic/?r=744974

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Shaun

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Hi Shaun,

I went to reply earlier and my PC crashed off the internet! I didn't realise that my question was going to open such a debate on another thread!

Anyway read through all of my notes now, and I think I had read it wrong maybe? I think they mean me to do the pay for him at £617 net and then the rest can be taken in Divs, I see where you are coming from but he doesn't directly employ anyone, anyone that he uses are under the CIS scheme, so in affect he is not a big company paying out Divs say half yearly.

Interesting thread the other one of Divs especially if you are a large company, mie are all small-medium size ones so don't get involved in it I leave it to the accountant to deal with. They mentioned the DLA so will email them just to make sure where it all needs to go in QB's so its all correct.

Many thanks for your help on this one. I knew someone would help me. Was having a very blonde moment even though I'm not blonde at the moment!!!

cheers,


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Amanda

gbm


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Hi Amanda,

You need to clarify exactly what wages his accountant has advised him to take, as £617 net or £2,625 will result in PAYE/NIC liabilities. I would usually suggest the £589 you suggested yourself, but then again I don't know his circumstances; speculation can be dangerous where you don't know all the facts.

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Nick

Website: www.gbmaccounts.co.uk
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Morning Amanda,

....What did you start!

Did you follow the other thread all of the way to it's conclusion (at least I think that it's reached it's conclusion!!!).

Think that it's the best debate we've had on here since the directors paying for goods for the company on a private credit card.

Definitiely needed to be aired though as people reading this site would have assumed that there was nothing to the dividend issue and could quite safely give such advice to clients. Ended up that the discussion went into insolvency, the companies act, case law... We're going to end up with this site on the curriculum of students of some of the accountancy bodies methinks!

have a good day and talk later,

Shaun.

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Shaun

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Shamus wrote:

... Ended up that the discussion went into insolvency, the companies act, case law... We're going to end up with this site on the curriculum of students of some of the accountancy bodies methinks!


 At the very least CPD logged time. I could put down about 1000 hours a year (Lordy - thats nearly 42 days)

 

 



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Just booking a thousand hours I think that you would probably be robbing yourself Bill! I know that you for one are as bad as Rob, myself and now some others who keep the site on one of our monitors most of the time and habitually keep pressing the "recent Posts" button.... Just got to answer one more, can give it up any time I like, I'm not hooked!!!

In working hours 1000 hours assuming a 7.5 hour day would be 133 days. At 5 days a week that's nearly 27 weeks per year. Or, at 50 weeks a year 4 hours per working day on the site... No wonder Rob hasn't kicked up too much of a fuss about not being able to answer posts on the site. I bet he's glad to be able to actually get some paying work done!!! lol

Think maybe there's an oportunity out there for someone to set up bookkeepers forum anonymous. We could have regular meeting where you can gather round and discuss how you just started as a casual user and before you knew it you were doing nine hours a day.

Actually, joking aside I think that evidenced discussions on this site about relevant subject matter can actually count towards the self certified part of CPD. Sure that Frauke or James will have comment on that






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Shaun

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~Hi shaun,

I have been reading the other thread, didn't realise my little question was going to raise such a debate!

cheers.

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Amanda



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It's going to be right up there is the all time list of 100 best little questions Amanda.

Top three little questions that I've had in my life :

At number three, from my four year old daughter to then new wife "Are you REALLY a Witch?"

Number two from my boy "Dad, What's the point in Squirells?".

And still coming in at number one from my ex Wife "Well, do you love her?".



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Shaun

Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.



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Well very good Shaun, like the number one question, how many ex-wifes are there now?



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Amanda



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Three!!!! I'm such a tart.

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Shaun

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Is there going to be a fourth?


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Amanda



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What are you doing next Thursday?



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Shaun

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Your Funny!!!!! LOL



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Amanda



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Shamus wrote:

What are you doing next Thursday?


 

 I'm not doin' anythin' but only if wife number two will let me out



-- Edited by Wella on Wednesday 11th of May 2011 01:19:36 PM

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Well, that's the best man sorted. Now just got to find a obliging potential wife!... Wonder where Sue is today.

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Shaun

Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.

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