If you prefer to pay yourself on an ad-hoc or irregular basis – for example when you complete a large project – you’ll need to pay particular attention to your automated payroll settings. From April 2013 you’re required to tell HMRC how much you’ve paid yourself each month, even if you haven’t drawn a salary. The good news is that our automated payroll feature will take care of notifying HMRC for you.
If you’re paying yourself on an ad-hoc basis you should pay particular attention to preview and check your payslips before each pay day. You should edit the salary as required, and choose the skip salary option if you do not want to draw a salary on your next pay day.
If you do not check your payslips they will be generated automatically based on your previous settings. Once payslips have been issued they cannot be changed or deleted.
You can change your salary when previewing your payslips.
1. Simply click on the pencil icon next to your payment.
2. Change your salary in the pop up window and select Apply.
3. Select Save to update the previewed payslip with your new salary.
From April 2013 onwards if incorrect payslips have been issued they cannot be amended, due to HMRC’s RTI restrictions. In this instance please contact your account manager for further advice.
If you need to find your Accounts Office Reference number, you can go into the PAYE payments for the period in the Taxes & accounts area.
Select the relevant PAYE payment to access the Accounts Office Reference number.
When your company has sufficient profits you may choose to pay a dividend to your company shareholders. When you create a dividend in inniAccounts you will be shown your available profit from which you can decide how much to pay out as dividends.
To pay a dividend, you must:
- hold a directors’ meeting to ‘declare’ the dividend
- keep minutes of the meeting, even if you’re the only director
- produce dividend vouchers
When you decide to pay a dividend our software will produce the minutes of the meeting and dividend vouchers for you.
If you believe your tax code is incorrect you’ll need to contact HMRC. You can find out how here.
Once you’ve spoken to HMRC they will issue you with a new tax code. We will then update your tax code in the inniAccounts software. We cannot do this unless we have been authorised by HMRC.
Take a look at our most recent tax codes guide for more information.
By paying yourself in the form of dividends you can keep your tax and National Insurance bills to a minimum.
Once your employees’ salary levels exceed approximately £12,500, it will attract between 20% and 45% tax. There is also Employees’ National Insurance at 12% and Employers’ National Insurance which is currently 13.8%.
Company profits, however, are subject to very different tax rules and the current tax rate is 19%. Once the tax is calculated on the profits the remainder can be paid as dividends to the shareholders. So overall, the tax payments on dividends are significantly lower than those taxes related to a salary.
For further information on paying dividends, take a look at our handy guide.
Dividends are paid out of company profits on which the company has already paid or is due to pay Corporation Tax. All shareholders receive a £2,000 tax-free allowance from HMRC.
The Dividend Allowance means that you won’t have to pay tax on the first £2,000 of your dividend income, no matter what non-dividend income you have. However, the Dividend Allowance will not reduce your total income for tax purposes.
How the tax on dividends is calculated
You’ll pay tax on any dividends you receive over £2,000 at the following rates:
|Tax band||Tax rate on dividends over £2,000|
|Basic rate (and non-taxpayers)||7.5%|
Dividends within your allowance will still count towards your basic or higher rate bands, and may therefore affect the rate of tax that you pay on dividends you receive in excess of the £2,000 allowance.
The tax is payable by individuals (not the company) receiving dividend income. The tax is calculated on your individual Self Assessment Tax Return and needs to be paid before the 31 January deadline following the tax year end. There is no National Insurance Contributions (NICs) payable on dividends.
For someone receiving a non-dividend income of £18,000 (i.e. salary) and dividends of £22,000. Note the total income (£40,000) is still below the higher rate tax threshold.
- On the £18,000 non-dividend income:
- £11,850 is covered by the Personal Allowance
- The remaining £6,150 is taxed as the Basic Rate
- Of the £22,000 dividend income:
- The Dividend Allowance covers the first £2,000
- The remaining £20,000 of dividends will be taxed at the Basic Rate
A P60 is an ‘end of year certificate’ that summarises an employee’s total pay and deductions for a tax year. They are issued once a year by an employer to all employees that were employed on 5th April.
A P60 shows how much an individual earned in a tax year (6th April to 5th April) and breaks down the Income Tax and National Insurance deductions for that employment. They are produced by employers and need to be issued to employees before 31st May.
Once issued, a individual needs to keep their P60 safe. It is evidence of tax paid and is an important document that maybe required a later date, for example when completing a Self Assessment Tax Return or applying for a mortgage.
Checking a P60
Employers and employees should check their P60s before they are issued / filed away. Sometimes employers records may not be up to date which should be corrected at the earliest opportunity.
We recommend that employers and employees complete the following checks on P60s:
- Employee’s details – are names spelt correctly and is the National Insurance correct and shown in full
- Pay and Income tax details – are the total pay figures for the tax year correct (should match last payslip of tax year)
- National Insurance contributions – is the employees NIC table letter correct
- Statutory payments – if there were any statutory payments made to the employee, are they shown and correct
- Other details – If any student loan payments were deducted, are they shown and correct
- Employees address – is the employees home address correct
- Employers details – are the employers name, address and PAYE references correct
A P45 is the reference code of a form titled ‘Details of employee leaving work’ that is issued by an employer when an employee leaves. It is used when an employee ends or starts employment with a company and allows each company and the Revenue and Customs to accurately calculate tax for the year. It contains details about earnings and tax paid during the tax year.
The form is in a number of parts;
- The front section, Part 1 is given by the employer to HMRC who record the pay and tax details on the tax payers record.
- Part 1A is retained by the employee.
- Part 2 is retained by the new employer.
- Part 3 taken by the new employer and sent to their tax office.
National Insurance is paid at the same time as PAYE personal income tax. This is monthly by default but if below a certain amount can be paid quarterly if requested formerly in writing to HMRC. The payments are due by the 19th day of the relevant month, and cover the period up to the 5th of the same month.
- For Quarter 1 earnings, payment must be made by the 19th July
- For Quarter 2 earnings, payment must be made by the 19th October
- For Quarter 3 earnings, payment must be made by the 19th January
- For Quarter 4 earnings, payment must be made by the 19th April
PAYE is a unique account your company has with HMRC. You’ll pay any deductions from payslips into this account, for example: income tax; National Insurance and student loan contributions.
You don’t have to be an employee, however if you’re not employed elsewhere then it’s beneficial to become an employee of your new company. This allows you to take full advantage of your tax free allowance: the salary that you draw will be free of PAYE Tax and National Insurance up to the level of your ‘Personal Tax Code’ for the tax year in question.