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Topic Title: Paying yourself via a Limited Company
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Created On: 21 March 2013 08:35 PM
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 21 March 2013 08:35 PM
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Zs

Posts: 2904
Joined: 20 July 2006

Hello,

Are any of you aware of changes to the way in which we pay ourselves from our Limited company with effect from 6th April 2013?

I gather from one of you that a notification of the amount paid and PAYE direct to HMRC will come into play on that date but I have not seen anything about it.

Have you received anything about this and do you know anything about it?

Zs
 21 March 2013 08:45 PM
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keylevel

Posts: 468
Joined: 31 October 2003

Hi Zs,

It's called Real Time Information (RTI). See this HMRC page.

I would talk to your accountant about it. If you don't 'need' salary, then it may be worth looking to take dividends only.
 21 March 2013 09:33 PM
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KFH

Posts: 205
Joined: 06 November 2010

HMRC have sent me stuff about it but I have not read it yet. If you only have a few employees(can't remember number but very low) you can use their software otherwise you have to use a commercial payroll package/supplier to tell them how much you have paid to each employee and what tax/NI you have deducted. .

Set your pay to be below the minimum for NI/Tax and send in zero returns every month, this way I think you get your NI contributions counted, I am above the minimum for a pension already so I did not pay attention to that bit.

Just another bit of red tape this Government have "cut" to hep us small businesses.
 21 March 2013 09:47 PM
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keylevel

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I can understand why they've done this though. It means they can keep on top of businesses that 'hold on' to the tax they have deducted from employees, which I can see causing a real cash-flow problem for the government. Worse still if they go bust after it has been spent else where...
 21 March 2013 10:07 PM
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KFH

Posts: 205
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I used to work for a company in Liverpool that always had cash flow problems. If they missed a monthly payment to Inland Revenue there would be two IR people in the office the following Friday (always a Friday) about 2:00 PM with a walking possession order. The accountant reckoned they wanted to finish early on a Friday as he had customers who were years behind with the payments who never got troubled but their offices were not near the tax office. If they could do it then they could do it now without adding to the work required for small companies which probably make up a small percentage of the tax/NI income.

I have become very cynical in my old age about the capability of any Government organisations capability to meet the needs of its customers i.e. taxpayers as opposed to its own managements needs.
 22 March 2013 08:21 AM
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Zs

Posts: 2904
Joined: 20 July 2006

I have a reply from my accountant. I'll copy it out for you later on. No time to do it now.

In effect it says don't worry and leave it all to me.

Zs
 22 March 2013 08:27 AM
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bartonp

Posts: 49
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Can we have his name then please? (If we are all to contact him)
 22 March 2013 09:22 AM
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SherlockOhms

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Billy Bentbooks?
 22 March 2013 12:32 PM
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Zs

Posts: 2904
Joined: 20 July 2006

Here are the salient bits from the reply.

When you draw money out it is "drawings" and not salary. At the end of a financial year, when I prepare your accounts I roll this up into salary + dividends. Salary is roughly equal to the personal allowance, and dividends is the rest, so there is no personal tax due.

RTI starts from 1/4/13 and will still be taken care of by me in the background, and will not affect how you draw money out, which will be exactly the same as the previous paragraph.

We can talk more about when we meet, but to confirm you don't need to worry about anything to do with it.


That's a relief. Thank you for the link keylevel. I had searched and not found.
Zs
 22 March 2013 11:28 PM
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keylevel

Posts: 468
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Glad to see you've got a decent accountant ;-) Luckily for me, mine also looks after all this stuff.
 23 March 2013 04:37 PM
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Paradigm

Posts: 700
Joined: 10 September 2010

mmmmm.

You need to be a bit careful there, you can't actually take "drawings" out of a ltd company per se. What you are effectively doing is taking a directors loan out from the company and there are strict rules regarding this. Its probably not too much of a problem as your accountant will balance it all up at the end of the year, repay your directors loan account with the dividends and write x amount off as salary.

I am pretty sure that the only problem I could foresee is if you get a tax investigation as they could get funny about it.

check out this link http://www.accountingweb.co.uk...paying-yourself


Regards

Nick

-------------------------
"be careful of what you write"
 23 March 2013 04:44 PM
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Paradigm

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That link doesn't seem to work

here is the question posted on that website

"I have a client who is Ltd and notice a lot of cheque book stubs marked as 'drawings', I thought that as a Ltd company and thus a director of a LTd company you dont 'draw' money from your business but you have to pay yourself a wage? Am I correct? If so does this have to be paid via PAYE ? My client also has a part time job so is already taxed under PAYE. Can you still draw money out being a LTd company and is this a tax deductable expense or a balance sheet item as per a sole trader?

Also is my clients payment of corporation tax tax deductable? I automatically thought it should be classed as drawings?"


And the reply


"A lot of people who operate as a 'Ltd Company' still treat the company cheque book as their own and draw money from it as they see fit. Everything marked as 'drawings' is a loan to the person concerned until treated otherwise in the accounts.

This is not a good idea for several reasons.

(i) Technically it is illegal under the companies act to loan money to a director. A moot point perhaps - until the Revenue refer to it that is.

(ii) If there is more than £5000 outstanding at the end of the company year, then a special part of the tax act kicks in and the company has to pay tax on the loan at corporation tax rates. Additionally the director will be assessed as a benefit in kind on the interest on the loan.

(iii) If the person owning the company continues to treat it as a sole trade then it is entirely possible that the Revenue will treat the company shell as a sham and tax them as a sole trader. It hasn't happened yet, but it may do.

(iv) If you try and use dividends to save a client tax and National insurance, the Revenue may use the upfront loan and the regularity as evidence that the payment is in fact salary and tax accordingly.

It is imperative that the client follows the correct procedure for declaring interim dividends from profits earned (not turnover) and moving them to a shareholder drawings account in the books *before* they start drawing on them. I usually suggest that dividends should be declared no more frequently than quarterly - to differentiate it from normal salary."


Hope that helps


Nick

-------------------------
"be careful of what you write"
 23 March 2013 06:47 PM
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DR2366

Posts: 705
Joined: 09 April 2006

I'm in the same boat and need to know the answer too.

RTI is pain as I too declare a small salary to just get an NI credit without paying NI. How to pay yourself this is the issue.

I will have to ask my accountant this aswell as do you say you get paid once a year and the other payments I receive are directors loan repayments and dividends or is it a salary paid each month?

Apparently there is some relaxation for small companies. I hope I qualify its just me!

I could ring the HMRC !! Why is life so complicated sometimes
 25 March 2013 07:16 PM
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Paradigm

Posts: 700
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DR2366

I don't see RTI as being anymore of a pain as the monthly CIS return to be honest. I use quickbooks and it will automatically send the info to HMRC when I do the monthly payroll and I just pay them by the 19th of the following month. And if you don't run accounting software, there is a way to do it online just like the monthly CIS return.

One good thing about it is that I believe we won't have to do end of year P35's which are a pain in the butt.

Maybe I should give up working in this crappy cold weather and start doing the books for you lot in the warm.

Nick

-------------------------
"be careful of what you write"
 25 March 2013 09:18 PM
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slittle

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Joined: 22 November 2007

Nick,

We've been using the HMRC cd for most things other than the CIS returns and it seems to work ok.

I'm liking your idea of giving up working in the cold weather.... I'm considering hibernation from September to June next year


Stu
 27 March 2013 03:03 PM
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Martynduerden

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I have been toying with Ltd, cant decide.

RTI swung me the other way to not bothering.

You need to be careful that any dividends are the legitimate type HMRC will have you for evasion if your not careful.

They have said on numerous occasions that the may if they choose convert you dividends in to salary at a moments notice.

The title of the topic is worrying "Paying yourself via a Limited Company"

It suggest tax avoidance rather that legitimate company, you are not paying yourself via a limited company, you are, or at least should be running a company for which you pay the employees, you might say its a play on words, but words prove state of mind and we all know what HMRC thinks about avoidance schemes.

-------------------------
Regards

Martyn.

Only a mediocre person is always at their best



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