If you employ staff or need to pay yourself as a Director, you will likely need to set up a PAYE (Pay As You Earn) Payroll scheme.
This is needed to report your Real Time Information (RTI) Payroll information, Employer Payment Summary (EPS) and Full Payment Submission to HMRC to declare any tax or NI due to HMRC.
Registering a PAYE scheme with HMRC, you will be issued a PAYE reference and an Accounts Office Reference which you will need to process Payroll and pay across deductions made from payroll to HMRC.
Ascentant are able to assist with setting up your Payroll scheme.
The optimal salary – Payroll vs Dividends
Once your PAYE scheme is set up, you will want to give consideration as to how to remunerate yourself.
Employees will have to be paid at the National Minimum Wage or above. This however does not apply to Directors of a Limited Company.
Some Directors of a Limited Company may therefore choose to pay themselves at a certain tax efficient threshold to pay themselves with a low monthly salary which is topped up by Dividends at the year end if there are retained earnings available.
Where a Director pays themselves at the Primary NI Threshold, they will get the benefits of paying NI, without paying Employee NI or Employer NI. Depending on their tax code, they will likely be below the tax threshold due to their personal allowance and therefore not have any tax or NI deductions from salary.
Dividends paid from retained earnings after Corporation Tax are taxed at a reduced NI rate on a Self Assessment Tax Return.
NB – Consideration should be given to this method if applying for a mortgage in the near future as reduced payroll earnings may be an issue when calculating affordability.
Payroll is also tax deductible for Corporation Tax purposes – Therefore by taking a smaller salary, you will increase your profit and Corporation Tax before calculating profit after tax for distribution as Dividends.
Before deciding which route to take, speak to us to calculate the best option in terms of tax savings or optimal remuneration.
Director National Insurance may be calculated via two methods.
Standard Method- For directors paid irregularly – NI worked out for total cumulative pay for year so far, working out contributions owed and deducting NI paid for the year to date.
Alternative Method- For directors paid regularly – NI worked out only on pay in the period, with a balancing adjustment at the end of the tax year for any further NI due.
The Employment Allowance
The Employment Allowance is an allowance against Employer NI provided by the Government each tax year. This stands at £4,000 for the tax year 21/22.
It is not able to be claimed for single director only Businesses.
It is allowable to claim where there are two directors earning over the secondary NI threshold.
There must be two employees or more earning above the secondary NI threshold to claim the Employment Allowance to offset against your NI bill to HMRC.
The Ascentant Payroll process
We will ascertain your Pay Date upon engagement and add it to our CRM system.
7 days before payroll, you will receive an email notifying you that your payroll run is due and whether there are any:
- New starters to add to payroll
- Bonuses or additions
- Changes to salary
- Variation in hours for staff paid hourly
- Deductions for unpaid leave, etc
- Leavers to remove from payroll
The Payroll will be drafted and usually a copy of the draft payslips and P32 report will be uploaded to our portal for review.
We will advise when this has been uploaded along with the amount of PAYE due to HMRC for the payroll run.
Once any amendments and further drafts have been made, you should notify Payroll that the payroll is ok to finalise and process.
The payroll will then be submitted to HMRC and you should set up payments to employees on their paydate for their net pay.
Payslips will either be emailed to employees electronically or be available in the portal for distribution to employees.
You should ensure that any PAYE due on the P32 report is paid by the 22nd of the following month.
You should notify us of any new joiners as they join your Business. We have a new employee payroll form that can be completed (just ask us for it!).
We will need the new employee form along with a copy of their P45 from their previous employment.
If this is not available, the employee may be put onto an emergency tax rate. If the employee has a second job, they will be put onto an emergency tax rate until HMRC split their tax code between employments.
If an employee is due to leave, inform us of their leave date so that we can work out their pro rata payroll if they are leaving part way through a payroll month.
You should work out if they have any holiday pay accrued but not taken that is owed to them.
You should also work out if there are any deductions to be made from their final pay such as outstanding loans or other deductions.
We will work out their payroll and upload a copy of their P45 to the portal along with their final payslip.
At the end of the tax year, we will prepare P60’s for your employees providing the end of year tax summary.
These will either be sent directly to them from the Payroll software or uploaded to the portal for distribution to employees manually.
We will contact you once the tax year has closed to check if any of your employees have had Benefits in Kind (BiK) that attract a taxable charge.
We will produce P11D’s for employees accordingly and advise of any tax to be paid.
Once you’ve sold your business and have received the funds from the sale, you’re then faced with a big question: what happens next?
After guiding the helm of your company, it will be tough to let go. But if the circumstances are right, there’s no reason why exiting the business should be a sad occasion. You’ve built a stable business and personal legacy. You’ve employed a team of talented people and helped them drive their careers. And you’ve brought your products and/or services to a satisfied and loyal customer base.
So, how will you now focus your time and effort? Let’s look at your options…
Retire and live out the entrepreneur’s dream
After many years of hard work, worries and stress, the thought of a business-free lifestyle may well be appealing. But retirement isn’t for everyone. If you have thrived on the pressure, challenges and excitement of being the captain of your business ship, retiring may seem like a step away from the action.
On the flipside, the allure of a more relaxed lifestyle may be strong. With the proceeds from your sale, you should be in a position to make you, your family and those around you very comfortable. It may be that the entrepreneur’s dream of building a business, selling up and retiring to a hot climate is your idea of perfection.
Stay involved in the business
Even though you don’t own the business anymore, it doesn’t mean you have to step away completely from the company. You could remain involved in the business in some capacity, allowing you to ‘keep your hand in’ and support the future course of the business.
For example, you could become:
- A joint partner in the business – you could sell a part share in the business and work as a joint partner with your new investor. This allows you to free up some capital, while maintaining an element of control and influence.
- An external adviser or consultant – you could advise the new owner and their board as an outside adviser. After all, who knows this business better than you? Becoming a consultant could well be an astute move and keeps you in the loop with the future path of the business – while charging out a consultancy fee as an added benefit.
- A non-executive director (NED) – you could join the board as a NED and use your personal experience to help guide and support the new owner and their board. If that’s the route you choose, it’s a good idea to retain some shares in the business, so you have a vested interest in the company’s performance and your own share value.
- An informal adviser to your family – if you’re handing the business down to the next generation of your family, they will almost certainly want your advice. You’ve been through the ups and downs of setting up the business, so you’re in the best position to give your family the guidance and tips they need to run a smooth operation.
Set up a new business
With so much experience behind you, it could be that you’re itching to start the whole business cycle again. If you’ve got the ideas, the capital and the motivation to start another new business, this can be a new and rewarding challenge to get your teeth into.
First time around, you’ll have been a little green and less aware of the many pitfalls of founding a new business. You’re now better prepared and more knowledgeable about what’s required from a founder and business leader. We learn plenty from our mistakes, so you’re in a great position to return to the business cycle again with a new idea.
As with any new businesses venture:
- Make sure you have a detailed breakdown of your business idea
- Write an in-depth business plan that maps out your journey
- Ensure you have the funding to get this idea off the ground
- Be prepared for a period of hard work and lower income before the company takes off.
Do your bit for charity and your community
We all have interests and causes that are close to our heart, so supporting charities and community projects in these areas is a great way to use your money for long-term good.
Donating money to your chosen charity or social enterprise is also a triple whammy:
- You get to provide funding to causes that are close to your heart
- You can be philanthropic and help people who are in challenging situations
- You get the positive impact of tax breaks for donating to charity.
You also have the option of putting your own time into working with these charitable causes. You can use your expertise and experience to guide them, help with fundraising or provide hands-on support at events, community projects or lobbying the Government for greater support.
The end of the road, or a new chapter?
Once the business is sold and you close your office door for the last time, you take a step into the unknown. But with so many varied and valuable options to choose from, your life post-exit need never be boring or predictable.
The potential is there for an exciting new venture, or the pleasure of relaxing in the sunshine by the pool. It’s up to you to define the next chapter in your life and your business career.
If you’re thinking about exiting your business, please do get in touch. We’ll help you plan your exit strategy, add value pre-sale and choose the best options for your personal future.
Talk to us about your next step.
Ascentant Accountancy are based in Derby (01332 981920, email@example.com) and Ripley, Derbyshire (01773 424009, Ripley@ascentant.co.uk), call us to see how we can assist.