When we take a new client on one of the first services we will provide, if it hasn’t been carried out by a previous accountant, will be to register your business for HMRC’s Pay As You Earn scheme. Once you begin to operate as a limited company you can no longer simply draw your wages from the company as drawings as you are now legally classified as an employee of the company. This scheme is also a requirement if you wish to employ any staff.
In order to do this we will request some personal information off you to help you set up an HMRC online account if you haven’t done so already. Once a request for a new scheme to be opened has been submitted HMRC will generally take a few weeks to get back to us with authentication codes to open the scheme online, once this is done we then request another authentication code to grant us agency authorization to act on your behalf as payroll agents.
Once the scheme is up and running we will then discuss a tax efficient salary to pay yourself. Generally we will advise not paying above your personal allowance (£10,000 as of the 2014/15 tax year) although you may be better off paying less if you are receiving Benefits In Kind (e.g. a company car) which will affect your PAYE tax code – We will discuss these more complicated arrangements with you if we believe it to be relevant. The reason for this is that beyond the personal allowance it becomes more tax efficient to make payments to yourself in Dividends (which I’ll explain in a separate blog post).
While paying yourself a salary at or below your personal allowance you are obligated to make PAYE payments only on the National Insurance deductions you incur. You will pay these to HMRC at regular intervals, usually every 3 months although this period can be changed, either via cheque or by using your HMRC online account.
Real Time Reporting (RTI)
RTI is a recent new addition to running a payroll scheme brought in as part of the government’s universal credit project. RTI means that you must notify HMRC on or before each date you pay your staff or receive an immediate £100 fine (while you have under 50 employees). Any payroll clients registered before April 2014 are exempt from this fine until April 2016, however it applies to any PAYE schemes registered after that date.