Real Time Information – Are you ready?

For many years it has been customary for directors of small companies to draw on a director’s loan account and then retrospectively adjust the accounts for salary (director’s fees) and/or dividend. As long as the accounts were approved within nine months of the year end this was allowable under the tax rules. The salary could then be reported to HMRC under the PAYE rules and a credit would be given for national Insurance contributions.As you will no doubt be aware, HMRC are introducing a new system called Real Time Information. This requires payroll scheme operators to report to HMRC every time a payroll payment is made. This applies for company directors too, but only to the salary element, not the dividends.This causes two potential problems:
1. Often funds are drawn as they are available, rather than on a regular basis
2. Either the directors will have to become payroll officers or they will have to pay someone to process the payments every time they are made.

The best way round this problem is to ‘pay’ the salary up front at the start of the tax year. However, rather than having to find the money in a lump sum the salary is credited to the loan account and can therefore be made available to be drawn on as and when required/funds allow. The advantages of doing this are:
1. PAYE reporting is done once, just as now
2. The actual day to day running of the company finances doesn’t change
3. HMRC will be informed that the salary is a one-off payment, so they won’t chase companies for PAYE payments that aren’t due, as they do now

The tax rules for director’s salaries are exactly as they were before. It is still possible to pay a salary below the NI limits and pay no PAYE, but have a full year’s NI contributions made.
For further information and advice please get in touch [email protected]

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