How to get a PAYE Settlement Agreement (PSA)

Calculator_TaxAgility Accountants LondonIf you’re a small to medium-sized (SME) business owner with a number of employees, you may wish to consider applying for a PAYE Settlement Agreement (PSA) to simplify your tax and National Insurance Contributions (NICs) paid on small, irregular, and impracticable expenses or benefits paid out to your employees.Read more


Does HMRC object to putting family members on the payroll?

It’s said that more than half of small businesses in the UK are family-owned, mainly in the wholesale, real estate, construction and transport sectors.

They employ more than 12 million people and generate more than a quarter of UK GDP. In London, it is estimated that there are more than 800,000 family businesses.

Even if you are the single owner of your limited company or a sole proprietor, there may be situations where you need an extra pair of hands helping you with the running of your business. In most instances, you turn to your spouse or family members as you know you can trust them to help you out on short notice. As such, questions relating to ‘can you put family members on the payroll’ abound, which is why our payroll specialists at Tax Agility aim to explain the ins and outs of hiring family members.

Family ties are irrelevant

First of all, it must be explained that HMRC deems your family ties to be entirely irrelevant when it comes to who is placed on your payroll. You can definitely employ your spouse or any family members and put them on your payroll.

What HMRC is very much interested in is what your company gets out of the arrangement. In other words, the person who is being paid a wage appropriate to the job should actually be doing the job. There must be no special treatment paid to the family member through an inflated salary, reduced working hours, or anything that falls outside the ‘equal pay for equal value’ idea.

Creating work for a family member

Many business owners incorrectly assume that they can only employ a family member within their company if they apply through the correct channels of communication for a job that is already available.

This isn’t the case at all. It’s entirely legal for you to create a job for your family member provided the work serves a necessary function in your company. For example, if you’ve been considering employing a receptionist for some time but haven’t got around to it, employing your spouse in this role would be perfectly acceptable. However, if you already have a receptionist who can currently handle their workload, to employ your spouse or any other family member as a second receptionist wouldn’t serve a necessary function in your company and could raise eyebrows at HMRC.

The same applies to employing your teenage son as your office cleaner, or your sister as an office administrator. So long as these extra bodies serve a necessary function, HMRC will have no issue with you employing them and placing them on your payroll, the same way you would any other employee in your company.

In general, the rules you must follow include:

  • The work must be real and your family members must be paid commercially viable wages. You can’t get away by paying them £2 an hour to do bookkeeping nor £100 an hour to answer telephone calls.
  • Payments must be made and records are kept.
  • You (the employer) and them (the employees) must pay National Insurance contributions if they earn more than £166 a week.
  • Obey child employment regulations if the family members involved are between 13-16-year-olds.

Should you make your family members shareholders?

As tax on dividends is lower than on salary, you may consider making your spouse a shareholder and allowing them to receive dividend payments instead of salary.

Here’s an example, assuming your spouse receives £35,000 in dividend payments in tax year 2019/20:

  • The first £12,500 is tax-free (personal allowance)
  • The first £2,000 of dividend is tax-free (director allowance)
  • Dividends up to £37,500 are taxed at 7.5%
  • This means the tax bill they are liable for is only £1,537.50

In comparison, if they receive £35,000 in salary in tax year 2019/20, then they are liable for £4,498 income tax.

Tax advantages

The salaries, commissions and bonuses you pay to your employees are tax-deductible expenses because they incur wholly and exclusively for the purposes of the business.

Here’s an example, assuming you hire your sister to do filing for £50 a week (£2,500 a year), you can offset this amount against your profit for income tax purposes. If you’ve done the work yourself, then you would be spending more time in the office while not enjoying the tax benefits.

Thinking about putting family members on the payroll?

If you’re a London-based business in need of further advice about putting family members on the payroll or other small business tax tips, contact Tax Agility’s small business accountants on 020 8108 0090, or get in touch with us via our contact page to arrange a complimentary no obligation meeting.

We’re London’s local accountants serving clients throughout the city with particular focus on Putney, Wimbledon, Fulham, Richmond, Hammersmith and Central London.

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This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.


Payroll

Payroll, pension and dynamic tax code changes April 2019

PayrollApril 2019 is the start of another new payroll year with the following changes taking effect.

Payslip for all: All workers (anyone who has a contract to do work or services and receive money or a benefit in kind as a reward) are entitled to receive a payslip. The only exceptions are members of the armed forces and merchant seamen/ seawomen.

Payslip changes: Employers must provide the number of hours worked on each employee payslip beginning 6 April 2019. This is to make sure that employers pay accurately and employees understand the exact hours they are being paid for in each pay period.

Student loan changes: Thresholds for repayment of student loans are changing in 2019. Before April 2019, the repayment threshold was £18,330, meaning anyone with a salary over the threshold must repay 9% of earnings. From April 2019, the threshold is increased to £18,935 for Plan 1 and £25,725 for Plan 2.

Increased statutory family and sick pay rates: The weekly amount for statutory family pay rates is increased to £148.68 or 90% of the employee’s average weekly earnings (whoever is lower) from April 2019. This rate will apply to maternity pay, adoption pay, paternity pay, shared parental pay and maternity allowance. The weekly rate for statutory sick pay is increased to £94.25 from April 2019.

Minimum wage and Living wage increase: Every April the minimum wage and living wage increase and the new rates from April 2019 are as follows:

Age 25 & over £8.21 per hour
Age 21 to 24 £7.70 per hour
Age 18 to 20 £6.15 per hour
Under 18 £4.35 per hour
Apprentice £3.90 per hour

 

Apprentices can be paid the apprentice rate if they are aged under 19 or if they are 19 and over and in the first year of their apprenticeship. An apprentice who is over 19 and has completed their first year of apprenticeship is entitled to the minimum wage rate for their age.

Pension auto-enrolment: From April 2019, the total pension contribution must be a minimum of 8% - out of which 3% must be contributed by the employer and 5% to be deducted from the employee’s salary.

Dynamic Tax Codes: HMRC dynamic tax codes continue to create challenges for employers. Using estimated pay to determine tax codes causes issues when bonuses are paid early or mid-year, increasing the estimated amount of tax owed by the employee. HMRC has implemented dynamic codes which allow for in-year adjustments, so corrections are made in the same year.

Dealing with payroll can be time-consuming and the related changes every year make it more challenging. At Tax Agility, we provide a full spectrum of payroll services to companies large and small. Call us on 020 8108 0090 or get in touch with us via our contact us page.


Payroll administration--pieces of paper-calculator-glasses and other objects

Why outsource your payroll administration

Payroll administration--pieces of paper-calculator-glasses and other objects

As a business owner, you know that managing payroll in-house can be a complicated affair. The payroll process is time-consuming as the tasks include statutory sick pay, statutory maternity/ paternity/ adoption/ shared parental pay, student loan, holiday pay, bonuses, pension and various National Insurance classes, among other issues like preparation of various forms (such as P11, P35, P45, P46, P60) pertaining to employment.

Spending your time dealing with payroll may not make sense for a small business owner because there are other areas that need your attention. Equally, hiring a dedicated person in-house to manage payroll for a small team seems excessive too. This is why it makes sense to outsource your payroll administration to a professional payroll company like Tax Agility.

Here are the five reasons why outsourcing your payroll administration is a smart move.

Focus on other aspects of your business

As an employer, you are obligated to record your employees’ salary in payroll software, even if they get less than £116 a week. The process involves:

  • Calculating deductions (taxes and National Insurance) from their pay.
  • Calculating the company’s National Insurance contribution if their earnings are above £157 a week.
  • Producing payslips for every employee.
  • Submitting their pay and deductions to HMRC in a Full Payment Submission (FPS).
  • Recording the payments.

Dealing with payroll is a time-consuming task. Every hour you spend on payroll administration is an hour that could be better spent developing your business or growing your business network. By allowing us to manage your payroll, you can turn your focus back achieving your business goal.

Lower your risks

Payroll is an on-going process that requires constant attention as HMRC is quick to issue a penalty. For example, in addition to paying your employees, you need to pay HMRC for the National Insurance contributions by the 22nd day of every month, otherwise you may have to pay a penalty.

In the event that you have paid your employees but forgotten to send the FPS to HMRC, they may also fine you.

When HMRC introduces a new law, like companies must now provide and pay into a workplace pension scheme for their employees, you need to be in full compliance of the law. The minimum contributions are 5% (2% from employer and 3% from employee) until 5 April 2019, then 8% (3% from employer and 5% from employee) after that day. With us staying on top of this issue, we can help you manage it so you’re compliant with the new law.

Cost saving

Outsourcing your payroll service can be highly cost-effective when you factor in the time spent on creating tax documents and monthly (or yearly) payroll software maintenance cost. You also don’t have to spend time learning the payroll software and manage the upgrade yourself.

Simplified National Insurance contributions

Splitting up into various categories, National Insurance contributions are complex. Understanding the classes – Class 1, 1A, 1B, 2, 3, 3A and 4 – alone require you to a good amount of time reading them. Leave them to the professionals because this is what we do best.

Full year-end payroll services

Every April, you will need to review your payroll reports, give your employees a P60 and prepare your employee records for the next tax year, plus you will also need to let HMRC know that it is your final EPS report of the year. There are certain dates you need to keep in mind, such as:

  • Before 5 April: send your final EPS to HMRC.
  • After 6 April: update your payroll software and employee payroll records.
  • By 31 May: give your employees a P60.
  • By 6 July: report employees expenses and benefits to HMRC.
  • Our payroll service will gladly help you to manage the year-end payroll process.

Outsource your payroll administration to the professionals

If you want to spend less time on tedious payroll administration and more time on other areas of your business, the best thing you can do is to outsource the work to us. At Tax Agility, our team will provide you with consistent payroll administration as well as one-off payroll exercises like providing your employees with bonuses, overtime payments and commission.

Contact us today on 020 8108 0090 to discuss outsourcing your business’ payroll administration to our experienced accounting team in London. Alternatively, you can get in touch with us via our contact page to arrange a complimentary, no obligation meeting.

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Time for Small Businesses to Start using RTI

Time_TaxAgility Accountants LondonHaving been slowly phased in since April 2013, HM Revenue and Customs (HMRC) announced last month that employers with fewer than fifty employees (small and micro business owners) will be required to start using Real Time Information (RTI) for each member of staff on their payroll from today, 6 March 2015.

The RTI system, which we’ve reported on extensively since it was announced over two years ago, is a new way for business owners to report Pay As You Earn (PAYE), with the hope that the new, real-time method of reporting payments to employees will improve the accuracy of returns, ensuring that employers are paying the correct amount of tax.
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Increase in National Minimum Wage (NMW)

Tax_TaxAgility Accountants LondonYesterday Business Secretary Vince Cable announced an above-inflation increase in National Minimum Wage (NMW) rate per hour from £6.31 to £6.50.

Coming into force across the UK on 1 October 2014, the first above-inflation rise (a real-terms cash increase) since 2008 is thought to have had a helping hand from the recommendations and influence of the independent Low Pay Commission (LPC), which earlier this year called upon Mr. Cable to bring in affordable rate rises to help the more than one million lowest-paid workers across the country with their basic, everyday expenses.
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Overview of SMP for Employers

Family_Tax Agility Accountants LondonDealing with and understanding Statutory Maternity Leave and Statutory Maternity Pay (SMP) as a new employer or SME can be difficult, especially if you’ve never had to deal with this issue yourself as an employee at a previous company.

Though we’ll be focusing on SMP in this post, it should be noted that all new mothers have a legal entitlement to take up to twenty-six weeks off around the time of the birth of their baby, regardless of whether or not they are entitled to SMP.
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Statutory Maternity Pay (SMP) Explained

Family_Tax Agility Accountants LondonIf you’re a small to medium-sized (SME) business owner, at one point, if it hasn’t happened already, one of your employees is going to tell you they’re soon to be expecting the pitter-patter of tiny feet.

Once you’ve finished congratulating them there’s a good chance you’ll find yourself wondering what on Earth you’re supposed to do next. You’re not alone. If you don't know where to start when it comes to this area, here’s a brief overview of Statutory Maternity Pay (SMP) from the point of view of you, the employer.
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Top Tips on RTI for SMEs

Time TaxAgility Accountants LondonBack in April 2013 HMRC introduced Real Time Information (RTI) PAYE reporting, a new system designed to improve the accuracy of returns while ensuring employers such as yourself are paying the correct amount of tax.

Unlike in the previous system whereby you would submit an end of year return to HMRC with the full tax liability of each employee, under RTI PAYE reporting you're required to submit information to HMRC regarding employee pay and deductions each time a payment is made – unless you employ fewer than fifty employees and some are paid more frequently than once a month.
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