Nil returns 4 PAYE on earnings above LEL during the year but not over LEL by end

pirate

Hi

I have something a bit similar to the post on "Treatment of salary in the accounts" posted earlier.

This is a bit of a new one on me so just wanted to check something.

Does the salary reported in the accounts need to be exactly the same as the salary reported by that date on the payroll? ie if we say that at the end of Sept 2011 the Directors Salary was £3000, should it also be in the payroll records as £3000? There was no other salary taken in the year ended April 2012, so overall he earned less than the LEL.

My new client registed for PAYE took £3000 in July which he said was salary. His year end 30/09/2011 he took no other money out. If I spread this out over 5 months nothing due to HMRC but he went over the LEL for that period which would have been something like £2652. I can then place it as salary in the Accounting Period to 30/09/2011.

My problem is this, as he went over the LEL then I need to do end of year returns by May 19th. He unfortunely has
already submitted a nil P35 using the link on HMRC web site. His reason for doing this was because he said that on that level of salary no tax or NI due. This was before he appointed us.

I have phoned HMRC to find out if the Nil return was logged but it has not been, but they say even though he is registered as an employer a nil return is fine, even though the salary was over the LEL by September. When I phoned then back with some other information they wanted, they then told me that the annual reports for PAYE are due and a Nil is not acceptable because he had earn't over the LEL by September, they also told me that the nil return although not logged yet may be logged soon.

This is conflicting advise and I am not sure which one I am obliged to do.

If the nil return was logged and he should have logged a return stating the £3000 then this is a problem. But not a problem if I can in fact spread it over the year.
I always thought that if you were registered as an employer whatever the salary (above 0) you had to do end of year returns, even if overall they were less than the LEL.

I dont want to put this in as a salary if it means we should actually be reporting it under the annual returns and we can't do this because a nil return has in fact been filed.

If it is ok however to file a nil return even if the salary was at the point of receipt over the LEL then I can include it as a salary in the accounts.

Hope this all makes sense, just wanted to double check on this.

Rozzi Rainbow

Hi, I'm not expert on Directors' NICs, so someone who understands this better may come along!

My view is always Yes, the salary reported in the accounts needs to be the same as the salary reported on the payroll records. The problem may be the timing of taking the £3,000 salary in July - at this time, tax and NI would have been due as only four months allowances were available. Of course by the end of the tax year, once the director's NI is recalculated on the annual basis, this tax and NI would be refunded. If you start saying part of the £3,000 was salary owed from before April, this raise the questions of the previous year's P35.

If you spread the £3,000 over the 6 months to September, then some has been taken in advance (in July) - not 100% sure of the implications of this, would his DLA have become overdrawn by taking the payment in July when the salary wasn't due until August/Sept? (*waits for someone who know more about this to come along*)

When the monthly salary of £500 is processed from April - Sept, these payments will be over the LEL, so a P11 needs to be maintained. Once the March payment (of presumably nil) is processed, the director's NIC rules reassess for the whole year, making the annual total less than the LEL. But this doesn't cancel the fact the P11 needed to be used earlier in the year.

Overall, I would say that Yes the PAYE return should have been filed declaring this salary. I don't think that's a major issue though, even though a nil return has already been filed you should be able to submit an amended return. Although reading all this back, the return would just show nil as the total earnings at the LEL, so perhaps there is no need to file one?? Looking on the HMRC website it says you need to send in a P35 if you have had to maintain at least one P11 (which should have been the case here), and not if you haven't.

I think it would be a good idea to get the return submitted anyway, covers all grounds.