PAYE Schemes - sole director companies

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Hi

Many of you who run your own limited companies (with no other employees) may have been advised to pay yourself a low salary, with the rest of your income taken as dividends from the company.

However, if your annual salary is above the lower earnings limit (LEL) but below the primary/earnings threshold (ET), although no NIC/PAYE is payable, you will need to operate a PAYE scheme. End of year PAYE forms (P35, P14, P60) will need to be completed and submitted to HMRC by the deadline dates otherwise fines/penalties may be charged. The NIC rates thresholds are here: http://www.hmrc.gov.uk/rates/nic.htm (LEL £87 pw, ET £97 pw for 2006/7).

Registration is straight forward and can be done online or over the phone (to 8pm weekdays, 5pm Sat/Sun).

Register online here: http://www.hmrc.gov.uk/employers/new-emp-email.htm , telephone numbers here: http://www.hmrc.gov.uk/employers/new-emp-telephone.htm

The information required to set a scheme up is:

* The company’s Registered Office, Company Registration Number and the date of incorporation.
* The names, addresses, private telephone numbers, National Insurance number and Unique Taxpayer Reference of the company directors.

HMRC instructions for the end of year procedure are here: http://www.hmrc.gov.uk/employers/end_of_year.htm

If any of you are in this situation, I would suggest that you deal with this ASAP as the deadline for submission of the forms is 19 May.

If you do pay yourself a salary above the LEL but below the ET you will receive NI credits entitling you to state benefits.
"Both the employee and the employer pay NICs only when the employee's earnings exceed the Earnings Threshold (ET) (£100 weekly or £435 monthly [for 2007/08]). But, for standard rate NICs, earnings between the LEL and the ET are used to protect the employee's entitlement to benefit."

For 2007/2008:

If you file your end of year PAYE returns online you (ie the company) will receive a *tax free* incentive only if it has paid some tax or NI during the year ie not a nil return (rule changed recently). It would be worthwhile paying a salary just below the personal allowance level but just above the NI earnings threshold say £5200 for the year and receive an incentive higher than the NI paid. The incentive will reduce over the next few years as online filing becomes compulsory rather than voluntary.

Regards

Keith
High Royd Business Services Limited
Small Business Specialists

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