Archive for category: Pay-as-you-earn

You are here: / Pay-as-you-earn

How do I pay myself as a Director?

/in , , , , , , , , /by

This is a question we often face from new company directors, how to pay yourself from the company.

As part of our £375+VAT package for a new limited company we offer the following;

  • company formation (including the option to have the company phrased as a special purpose vehicle for a property rental company)
  • we will register a single director with HMRC for self-assessment
  • we set up the payroll scheme
  • we arrange your chart of accounts on online software and set up the bank feed so transactions are automatically recorded

So the two ways to get paid are in the form of a monthly salary run from a payroll set up by the limited company and the second way is through dividend allocations based on the company’s annual post-tax profit.

A salary is treated as an expense to the business, therefore decreasing profits, reducing corporation tax, and in turn, minimising the amount of dividends available to then be attributed to each shareholder.

We suggest (correct as of the 23/24 tax year) a salary of £9,096 per annum (£758 p/m) as this is the minimum amount to qualify for a state pension (also known as the secondary threshold).  If there are 2 or more directors (on the secondary threshold or above) or any additional staff on the payroll above the secondary threshold for the company, the Employment Allowance offered by the government becomes available, giving the company £5,000 ‘pot’ towards the employer’s NI contributions.

If the company posts a profit, the value of the post-tax profit can be allocated as dividends to the shareholder(s) of the company.  If there is more than one shareholder, then the dividends are allocated dependent on the percentage of shares held by each shareholder.

Unfortunately, the tax efficiency of dividends is being reduced.  For the 22/23 tax year there is a £2,000 tax-free allowance, for 2023/24 there will only be a £1,000 tax-free allowance and for 2024/25 it has been stated that it will be halved again to £500.

The amount of tax you pay on dividends will be dependent on your income tax band which includes your tax-free allowance, and any earnings from the limited company and any other earnings outside.

This will need to be declared on a self-assessment tax return to HMRC, which covers the period of the UK tax year from 6th April to 5th April every year.

As part of our £375+VAT package we can enrol one shareholder/director onto the self-assessment scheme with HMRC to obtain a Unique Tax Reference (UTR) to allow them to comply with their personal tax obligations in the future.  Contact us on 020 8761 8000 for more information.

PAYE, 2021/22 Tax Thresholds, Employment Allowance & P800s

PAYE, 2021/22 Tax Thresholds, Employment Allowance & P800s

/in , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , /by

PAYE, 2021/22 Tax Thresholds, Employment Allowance & P800s

My name is Daniel and I have been a part of the Taxfile family since 2007. It started as a part-time job doing bookkeeping, but as time went on, I developed new abilities and a deeper understanding of the tax world. PAYE, VAT, and Company Register are now my areas of expertise.

I understand how complicated the tax world is, so here are a few PAYE things to consider:

Understanding the tax thresholds for 2021-2022

PAYE is calculated based on how much you earn and whether you are eligible for the personal allowance.

  • Standard Rate: PAYE income tax is charged at 20%, less a personal allowance of £12,570, this is signified by tax code 1257L.
  • Higher Rate: For most, income over £50,270 to £150,000 is charged at 40%.
  • Additional Rate: Income above £150,000 is charged at 45%.

What is the Employment Allowance?

The Employment Allowance allows certain businesses that employ workers to reduce their annual National Insurance (NI) bill by up to £4,000 (for the 2021/22 tax year).
Eligible businesses can claim a reduction against their employer’s Class 1 NI liability up to a maximum of £4,000 each tax year. You can still claim the allowance if the liability was less than £4,000 in a tax year.

You can’t claim if you’re a company with only one employee paid above the Class 1 National Insurance Secondary Threshold (£8,840 for the 2021/22 tax year, up from £8,788 for the 2020/21 tax year) if that employee is also a director of the company.

How will I know if I haven’t paid the right amount of PAYE?

HMRC will send out a P800 tax calculation form after the tax year ends on 5 April, which you should receive by the end of November. This will show how much tax is due to be refunded, or is owed for previous years.

Another significant aspect of Taxfile is that it works with a wide range of accounts software (Sage, QuickBooks, Xero, FreeAgent, VT, Forbes, Moneysoft, and so on) and can accommodate everyone. These are just a few examples, but if you need assistance with any area of PAYE, VAT, or other types of tax, Taxfile and the team are here to help. Call Taxfile on 020 8761 8000, book a free appointment (in-person and phone or video call options are available) or simply message us your tax-related query and we’ll be happy to help. We are accountants and tax experts in South London.

This post was brought to you by Daniel at Taxfile.

Furlough Scheme Extended until End of September

/in , , , , , , , , , , /by

Furlough Scheme Extended until End of September

In The Chancellor’s 2021 budget speech it was announced that the furlough scheme would be extended until the end of September 2021, to protect the jobs and livelihoods of the UK population during the pandemic.

The Government will pay employees 80% of the hours not worked through to the end of June 2021.  As the country opens up it will then offer 70% with the employer to contribute the other 10%, then in August through to the end of September they will ask the employer to pay 20% while the Government covers the remaining 60%, so the employee continues to receive the 80% of their income for the hours not worked.

If you or your business need help setting up a payroll and help with the furlough scheme, then please do not hesitate to contact us on 020 8761 8000.

Coronavirus Job Retention Scheme Extended

/in , , , , , , /by

[UPDATED FEBRUARY 2021] The Coronavirus Job Retention Scheme is being extended until 30 April 2021.

As a result of the ongoing pandemic, the Government’s response has been to extend the furlough scheme at the original 80% level.  For now we know this will extend through to the end of April 2021.

From 1st November 2020 you can claim 80% of an employee’s usual salary for hours not worked, up to a maximum of £2,500 per month. You can claim for employees who were employed on 30th October 2020, as long as you have made a PAYE RTI submission to HMRC between the 20th March 2020 and 30th October 2020, notifying a payment of earnings for that employee. You do not need to have previously claimed for an employee before the 30 October 2020 to claim for periods from 1 November 2020.

There is no maximum number of employees you can claim for from 1st November 2020.

All claims for periods from 1st July 2020 through to 31st October 2020 must be submitted by no later than 30th November 2020.

Claims from 1st November 2020 must be submitted by 11.59pm 14-calendar days after the month you’re claiming for. If this time falls on the weekend or a bank holiday then claims should be submitted on the next working day.

Claim for furlough days in Claim must be submitted by
November 2020 14 December 2020
December 2020 14 January 2021
January 2021 15 February 2021
February 2021 15 March 2021
March 2021 14 April 2021
April 2021 14 May 2021

At Taxfile, we can calculate furlough payments for your staff and ensure that all your submissions are done on time.  If you need to outsource the payroll for your business, then you can call us on 020 8761 8000.

Guy Bridger outside the Tax Office

“Pay As You Go” Self-Assessment is on it’s way!

/in , , , , , , , , /by

Pay-as-you-go Self AssessmentA few years ago Guy Bridger, from Taxfile, was helping to advise The Office of Tax Simplification and the then Director Michael Jack. Guy proposed that, while the bulk of the working population have their taxes calculated by their employer and thereforGuy Meets Rt. Hon Michael Jacke pay taxes in ‘real time’ with clarity, ease and convenience, the same was unfortunately not true for the UK’s small business owners and the self-employed. For those, it is too often the case that taxes are paid as much as 18 months in arrears because of limitations in the existing tax system. This time lag often means that the tax due to be paid has been spent already, simply because that old system had too large a reporting and payment window. So Guy suggested that ‘real time’ reporting and payments of tax would be significantly more convenient and beneficial to the small business owner and self-employed individual. It would enable them to keep on top of taxes and, as an added bonus, their accounts records too.

The Government has now recognised this good advice. In a new system nicknamed ‘Pay As You Go Self-Assessment’, the Chancellor has announced that small businesses, landlords and self-employed workers making more than £10k in profit each year will be able to account for tax in virtually “real time”. This will be made possible via Read more

RTI (Real Time Information) – last Full Payment Submission (FPS) due soon

/in , , , , , , , , , , , , , , , , , , , , , /by

Exactly eleven months ago at time of writing, HMRC launched ‘RTI’ (Real Time Information) in the UK. This is the mechanism through which employees now have to report PAYE information for employees on the day it actually happens, or alternatively before that day, for example to confirm to HMRC each time an employee is paid through PAYE, including any NI or Income Tax deductions. RTI is, almost without exception, for all employees including those whose earnings fall below the NIC’s Lower Earnings Limit (‘LEL’), e.g. students.

The RTI reporting has to be done electronically using payroll software, whether that’s the employer themselves reporting it, or their nominated accountant, payroll bureau or bookkeeper. The information reported to HMRC will also now need to include new information which includes the usual hours worked by each employee and any unusual break in the normal working pattern, for instance if an employee takes unpaid leave. RTI also includes other changes to how various things are reported e.g. starter and leaver dates and also employers no longer need to submit end of year forms P14 and P35 because this will be handled on the last Full Payment Submission (‘FPS’) for the tax year in question – this is due in less than a month  at time of writing as the new tax year begins Read more

It’s official: thousands are on the wrong tax code!

/in , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , /by

With the tax return deadline being only hours away (midnight 31 January 2014) there is still time to get professional help if you need it – particularly because HMRC  often get it wrong according to new research by UHY Hacker Young.

In just one example, HMRC sent a tax bill to a pensioner which demanded over £576k in tax! With an income of only £11k per annum this was clearly incorrect but what if it had been only hundreds of pounds wrong – would the pensioner have noticed and, if so, would he have been confident enough to question it with the might of HMRC?

According to the research, HMRC employees have been making ‘basic’ errors which have led to problems such as people being on the wrong tax code and consequently underpaying or overpaying tax. While underpaying it may sound attractive on the face of it, chances are the system will catch up and then a correction will need to be made later on, leaving the taxpayer with an unforeseen bill to pay – a real blow for cashflow.

While the UHY Hacker Young research cites an error rate in 2013 of 37% in the sample tested, HMRC are arguing that the research is wrong and that their PAYE coding notices are 99% accurate. Either way, when you consider that Read more

Overpayment of tax through PAYE

/in , , , , , , , , /by

PAYE (Pay As You Earn) is the system used by employers and pension providers to deduct tax from your wages or pension. If you think you’ve paid too much Tax through PAYE you can contact Taxfile‘s tax accountants in South London and they will clarify that for you.

HM Revenue & Customs (HMRC) gives you a tax code that shows your employer or pension provider how much tax to deduct from your wages or pension before you get paid. You’ll find your tax code on your P45 or your wages/pension payslip.

It is possible you might have overpaid tax in the following circumstances:
• you started a new job and had an emergency tax code for a while
• you were only employed for part of the year
• your employer was using a wrong tax code
• you’re a student who only worked at holiday times
• you had more than one job at the same time
• you stopped working and didn’t get any taxable earnings or benefits for the rest of the year
• your circumstances changed – for example you retired, were made redundant or became self-employed
• you have taken a pension in the form of a lump sum rather than a small monthly amount (this is known as ‘trivial commutation’), the rate of tax you pay on the lump sum could be higher than the basic rate of tax you pay over the year and could cause an overpayment.

Any overpaid tax from previous years will we calculated by the tax office and they will send you a refund in the post or through bank transfer.

What you need to bear in mind is that you can only reclaim overpaid taxes for up to a maximum of six years previous to the current tax year.

© Copyright - Taxfile 2026. All rights reserved | Site by Starling Design
Call Now Button