Director and payroll

LondinaLondina Experienced MentorMAAT, AAT Licensed Accountant Posts: 814
Does anyone know if a director whether he pays PAYE or not, he's still deemed to be on the payroll?

Example if he gets paid by dividend only?

Thanks

Comments

  • ncraggsncraggs Just Joined Registered, Tutor Posts: 70
    if it is normal to put the director on the payroll to use their personal allowance, as if they dont use it they lose it. They also get their NI contributions as well.
    AAT Distance Learning Director First Intuition www.fi.co.uk
  • LondinaLondina Experienced Mentor MAAT, AAT Licensed Accountant Posts: 814
    edited September 2015
    thanks @ncraggs ! is it compulsory to do that? I previously remember dealing with directors who were not on the payroll at all!

    I can understand if they get paid part salary/part dividend, but when they get paid dividend only?
  • KernowAccountantKernowAccountant Settling In Nicely Registered Posts: 120
    Directors don't get paid dividends. Shareholders do.

    Of course, a director may also be a shareholder, but it is not in their capacity as director that they get paid a dividend.

    What is the reason behind your original question?
  • shamil91shamil91 Registered Posts: 94
    Good evening,

    The director would need to pay tax and national insurance depending on their circumstances. In relation to your question (I think) the direct is classed as self employed hence why he is not paying PAYE but he or she would need to complete an employment income self assessment (SA102). Also as stated by Kernow accountant even if the director was recieving a dividend they would need to disclose that on the Self assessment as it is part of an income. Also in relation to national insurance they will need to contribute depending on their class which is Class 2 or Class 4 National Insurance. Hope this helps you out and good luck

    Kind regards

    Shamil Karia
  • LondinaLondina Experienced Mentor MAAT, AAT Licensed Accountant Posts: 814
    of course in a micro business the owner is the director and shareholder. I'm asking because it's an unclear situation and I've been told that a director is always on the payroll, even if he doesn't receive any salaries. I can't confirm this on Gov.uk website (which by the way, it's absolutely terrible, I'm missing the old HMRC with lots of infos!)
  • LondinaLondina Experienced Mentor MAAT, AAT Licensed Accountant Posts: 814
    shamil91 said:

    the direct is classed as self employed hence why he is not paying PAYE but he or she would need to complete an employment income self assessment (SA102).

    Thanks @shamil91 , this is what I'm thinking too, ie a director is like a self-employed and have his own personal tax return to do. Since that, he can't be considered an employee on the payroll?

  • shamil91shamil91 Registered Posts: 94
    Good evening,

    Sorry for my director spelling mistake. He is probably claiming himself to be self employed. Yes if someone choses to claim as self employed you dont need them on the Payroll as the company can invoice him for the services they have provided, that would be his income which he would need to declare on their Personal Tax return. If he wishes to change to be classed as an employee he must notify change of circumstances to HMRC. I think for the director if they wanted to save the hassle of filling out a self assessment for each employment I would suggest be on the Payroll and get his taxes and NI paid through the Payroll save the hassle of filling out Self assessments just my own opinion. Even if he works part time hours, shift patterns, etc they can still be on the Payroll.

    Hope this helps you out and good luck

    Kind regards

    Shamil
  • shamil91shamil91 Registered Posts: 94
    Hello again,

    In relation to your question the Directors national insurance would be calculated a bit differently if they are recieving a dividend you would need to calcuate it, for that case I would suggest just complete a self assessment as you would need to gross up the dividend as it would be taxed at source by 10% then you would need to work out the tax liability from there and finally deduct the 10% tax at source as they would have already paid that at tax.

    Please also see this link : http://support.companywizard.co.uk/guide_paye_dividends.htm

    They have a guide in relation to PAYE vs Dividends and it explains about the director. Its only a page and not too worded. Hope it helps you out and good luck

    Kind regards

    Shamil Karia
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,447
    I thinks it depends whether the director has a contract of employment with the company.

    To reply to @ncraggs a director shareholder may have another PAYE job and they may have already used up their personal allowance; it is not unusual in this situation to only declare dividends.
  • shamil91shamil91 Registered Posts: 94
    True, they would need a contract of employment with the company. If the director has another job and is on the PAYE and used up their personal allowance they can still be on the PAYE system with this job as well with an allocated tax code of BR (emergency tax code or usually allocted if someone has more than one job) meaning that any source of income is directly taxed at 20%. True a director could have all different sorts of income ranging from employment income, dividends, savings income, trading income, property income etc.
  • LondinaLondina Experienced Mentor MAAT, AAT Licensed Accountant Posts: 814
    no, no, we are going off topic here....

    The director is the business owner of his own limited company which has also 5 employees, he's not a self employed and he doesn't have any contract of employment with his own company, nor he has another employment somewhere else.

    He's a simple director who gets paid dividends and therefore I believe he has to do a personal tax return, but he's NOT considered on the payroll
  • shamil91shamil91 Registered Posts: 94
    Hello,

    No problem that is fine. The director is the owner of this limited company. So instead of dividends wouldnt it be classed as drawings?

    This link should help you out : http://www2.deloitte.com/ie/en/pages/deloitte-private/articles/taxation-company-directors.html

    Good luck

    Kind regards

    Shamil Karia
  • LondinaLondina Experienced Mentor MAAT, AAT Licensed Accountant Posts: 814
    shamil91 said:

    Hello,

    The director is the owner of this limited company. So instead of dividends wouldnt it be classed as drawings?

    you are incorrect here Shamil, drawings are for self employed people, dividends are for limited companies

    MarieNoelle
  • shamil91shamil91 Registered Posts: 94
    No problem I just thought dont worry :-). It was only a suggestion sorry. Was the link any useful help to you?

    Many thanks

    Kind regards

    Shamil Karia
  • LynWestLynWest Well-Known Registered Posts: 122
    Hi I don't think they have to be on the payroll.
    You are correct that it is dividend and not drawings.
    My understanding is that unless there are any BIK's or a salary equal or above the LEL then a payroll scheme doesn't even need to be set up.
    If one employee hits this then a payroll scheme needs to set up and all wages need to be filed.
    If they are not taking a wage then there is nothing to report.
    As a belt and buckles approach, I would put them on the payroll and just submit a NIL RTI for them.
    Hope that helps
    Londina
  • MinhazMoosaMinhazMoosa Registered Posts: 10
    edited October 2015
    Hello,

    I think people are going off topic here,

    If the Director is on the payroll then he is PAYE.
    If the Director is not on the payroll then he will be getting paid by dividend only. (Therefore not PAYE)

    Being on the payroll on a Director table salary (£671.67) makes it beneficial in terms of reducing liability. They would also need to complete a Self Assessment.

    Minhaz
    Londina
  • richiebkerryrichiebkerry Settling In Nicely Registered Posts: 45
    Hi @MinhazMoosa , what about if they got paid a salary PAYE and a shareholder dividend?
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