First Client -NMW/Dividend nightmare!

Good Evening All, A few weeks ago I was celebrating my first client (albeit only his bookkeeping, vat, payroll but it's a start), now I'm not so sure! I am sure he has been given some bad advice by his 'tax accountant' as he calls her but I'd welcome some opinions before broaching the subject with him. He has 2 employees to whom he pays a threshold salary plus dividends - they each hold a class b share... I see the following problems with this: They are not directors and so under their contract of employment must be being paid less than national minimum wage. They are paid dividends of different amounts. The dividend is paid monthly and not as a separate payment to the salary (looking back he has sometimes paid them in 2 tranches but never the distinct dividend/salary split. The previous bookkeeper was had passed her aat but was not MAAT nor a MIP, I am horrified at how many mistakes I am finding! I have contacted his accountant regarding this but haven't had a response, but to me this looks like an artificial arrangement to avoid PAYE/NIC?? Any advice welcomed... Thank you in advance

Comments

  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
    Eek. That smells fishy. They are receiving dividends by way of their employment, so I think form 42 has to be done and NI paid (don't know, never get involved with it because it's a pain!). If he is paying under NMW as salary then he can get in trouble, but in practice he only will if the employee or HMRC spot it and kick up a fuss.
    I know it's your first client but I would be inclined to politely disentangle yourself from this can of worms, as you don't need a headache like this on your first client. Though, if it's just bookkeeping then it's not your problem!!
    But yeah, your gut feeling is probably right. Sounds right dodge to me!
  • RAS
    RAS Registered Posts: 124 ? ? ?
    If you are engaged to do just the bookkeeping, VAT and PAYE, I wouldnt get involved in contacted your clients accountant to give your opinion on the salary/dividends arrangement. If you are uncorfotable with the situation, probably best not to take the client on, especially if it is your first client.
  • Ellabobbin
    Ellabobbin Registered Posts: 92 ? ? ?
    Thank you!

    Since I wasn't aware of the situation I had already taken on the bookeeping etc...
    It was only when I had the bookkeeping and a meeting with the previous bookkeeper that I realised the payroll might not be quite correct...


    Hmm, what to do now!
  • Ellabobbin
    Ellabobbin Registered Posts: 92 ? ? ?
    Thank you!

    Since I wasn't aware of the situation I had already taken on the bookeeping etc...
    It was only when I had the bookkeeping and a meeting with the previous bookkeeper that I realised the payroll might not be quite correct...


    Hmm, what to do now!
  • burg
    burg Moderator, FMAAT, AAT Licensed Accountant Posts: 1,441
    You cannot change the past. Now you are acting you can clearly state that you don't agree with how this has been processed in the past and explain the risks and consequences. Then give them the option of what to do. It is then up to you if you still wish to act.
    Regards,

    Burg
  • deanshepherd
    deanshepherd Registered Posts: 1,809
    I'm not sure it is even your problem.

    If your client has taken tax advice elsewhere and is happy to follow that tax advice then you have done all you need to in flagging it up.

    There are perfectly legitimate ways of using share schemes to pay staff; although this does not sound like one of them.
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