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HMRC online system is not online!

It is common knowledge that HMRC PAYE system can take couple of weeks to update RTI submissions and any payments that you make to them.

 

It has recently come to our attention that information provided on it may also be incorrect.

 

Recently, we came across a case where amount shown on HMRC online website differs by around c£40k with HMRC own records. When client called the help-line, they were unable to explain the reason for difference.

 

We are investigating, watch this space …

National Insurance is weekly or monthly but not yearly

Directors National Insurance

April 2017

My client took a new employee who had worked for two months with another employer before joining him.

My client will employ this individual for a couple of months paying say £1000 per month.

After taking the last employer’s pay and current projected pay this individual’s earning was below Personal Allowance limit of £10,600 (Tax year 2015 -2016)

When I ran the payroll , HMRC Basic PAYE tool asked me to deduct Class 1 National Insurance from this employee’s pay.

I was confused as I calculated that this employee’s total pay in the whole tax year will be less than Primary Threshold of £672 x 12 = £8,064

I had been calculating National Insurance contribution like Income Tax and taking the National insurance thresholds to be same as Income Tax Threshold.

I researched and once again Chartered Institute of Tax Advisor’s(CIOT) website came to rescue. It informed me that national insurance thresholds are calculated on a weekly or monthly basis (depending on the payment cycle) unlike Income Tax where thresholds are calculated on a yearly basis.

Example of Hypothetical Emily was most illuminating. Visit the below mentioned page and

Ctrl + F “Emily” to find the example.

Link to the article : http://www.taxguideforstudents.org.uk/tax-essentials/what-is-national-insurance

Thank you CIOT

March 2019

Recently my colleague Neel took another client where the director was appointed during the financial year. He was processing his one salary payment as £8,424 the NIC threshold for financial year 2018-19 but tax softwares were asking him to deduct NICs. We tried in two different software same result.

We searched on the internet and came across another helpful guide by HMRC CA44. It reminded us that like employees , directors appointed mid way through the year will have their NIC threshold pro rated.

 

When should one register as Self employed with HMRC ?

This question cropped up today during our discussion.

 

I was of the opinion that “within 3 months” of start of business one should inform HMRC by registering as a self-employed.

 

I was challenged on this and informed that latest guidance stated that one can register within 6 months after the end of financial year.

 

I came home and checked guidance is :

 

“Register as soon as you can after starting your business. At the latest, you should register by 5 October in your business’s second tax year.

 

Example

If you start working as a sole trader between April 2014 to March 2015, you should register before 5 October 2015.

 

If you register later than this, you won’t get a penalty as long as you send your Self-Assessment tax return and pay your bill on time.”

 

I think HMRC means by the bill both Income Tax and both Class 4 and 2 National Insurance contributions.

 

But as informed by one of the discussion member, he recently registered an individual in Oct 2015 and mentioned that the individual started work in Jan 2015 but was asked to pay Class 2 NI for last 2 months only.

 

It seems HMRC’s internal computer systems are using the old guidance of 3 months, whereas the guidance to public has changed.

Which accounting framework?

There are too many accounting framework around IFRS, IFRS for SMEs, FRSSE, FRS 102 and others,  all creating a confusing mess.

I have listed below a simply the applicable frameworks:

Company type Accounting framework
Micro company       ie. Turnover below £632,000 per annum1 FRS 105
Small Companies    ie.  Turnover below £10.20 million per annum1 Section 1A Small Entities of FRS 102
All others FRS 102
Listed Companies IFRS

Where an entity prepares its financial statements in accordance with an accounting framework , a statement of compliance needs to be included in the notes.

Notes :

  1. Other criteria also apply like number of employees and balance sheet total.

Further reading:

  1. Visit FRC website and search for financial reporting framework.