PAYE on bonus - is this correct?

**Jessica@WhiteFieldTax** · 25 June 2013, 21:09

I tend to disagree; I've not heard of any restriction in changing earnngs periods.

http://www.hmrc.gov.uk/guidance/cwg2.pdf

Top of page 9 covers "Change of pay interval to a longer interval" so it looks like its contemplated.

That said annual earning periods are unusual per se so there may be something I've missed.

HMRC have a block in moving ** schemes ** to annual at present, ie moving from monthly to annual RTI submissions but that would not impact on calculations at staff level, just submissions.

**northernladuk** · 25 June 2013, 21:26

Is the 23K from work done last year or are you just paying yourself a lump sum upfront to cover the next year? Won't their be issues about paying yourself a salary you haven't earned yet? Surely you would have to wait until the end of the year before paying yourself that much? I spoke to SJD about salary up front option and they told me not to but the reasons they gave escape me now.

Not sure if this is relevant to your situation as I am not understanding your reasons or the amounts mentioned so must be missing something but there is a very long interesting thread about paying up front here...

http://forums.contractoruk.com/accou...y-advance.html

EDIT : I noticed on a lot of stuff I read while looking around the term 'real business justification' kept popping up. Would this be a separate issue to think about on top of what is and isn't allowed or are you free to do what you want?

**Nixon Williams** · 25 June 2013, 21:36

Most accountants experienced with contractors will calculate NIC using the directors cumulative method. This would avoid this problem. As has been mentioned, I am not aware of any reason why your accountant cannot swop you to the cumulative method.

I will ask why are you taking it as a salary/bonus? Assuming that you are the shareholder a dividend would be more ax efficient.

**northernladuk** · 25 June 2013, 21:46

Erm, sorry to ask for clarification even though I can't add anything to this but where is the bonus?

You said

I paid £641.33 salary in April and May. I want to pay aprox. £23,000 in June. This will (probably) be my last salary payment for my 2013/2014 year, though I will remain a director for the rest of the year.

I read this as the £23k will be your last salary payment... Where is the bonus element?

**Sockpuppet** · 25 June 2013, 21:46

I thought directors had to use the cumulative method in order to stop you avoiding NI by paying yourself a massive lump sum and hitting the NI threashold then paying £0 for the rest of the year and claiming tax back?

**Jessica@WhiteFieldTax** · 25 June 2013, 21:50

Originally posted by Sockpuppet View Post

I thought directors had to use the cumulative method in order to stop you avoiding NI by paying yourself a massive lump sum and hitting the NI threashold then paying £0 for the rest of the year and claiming tax back?

In theory yes, in practice no if the salary is equal during the whole year.

**Contreras** · 25 June 2013, 21:53

Try this:

To assess NICs for company directors:
• use an annual (or pro rata annual) earnings period to work out NICs
• work out NICs on the total earnings paid to the director each time a payment of earnings is made
• deduct the NICs already paid, if any, to arrive at the amount of NICs now due
• include all the director’s earnings when working out NICs, including fees and bonuses

**Wanderer** · 25 June 2013, 23:53

Originally posted by IR35 Avoider View Post

I paid £641.33 salary in April and May. I want to pay aprox. £23,000 in June. This will (probably) be my last salary payment for my 2013/2014 year, though I will remain a director for the rest of the year.

Why are you taking a bonus not a dividend?

Can you take it as a director's loan instead?

**IR35 Avoider** · 26 June 2013, 01:07

To answer a couple of questions, a "bonus" is just another name for salary that's over and above normal salary.

The "bonus" is to offset all my IR35 liability accumulated so far this year, so is covered by work I've already done. (Although June's work will only be invoiced/paid in July.) I do treat myself as IR35-caught.

To clarify further, I want to pay the salary before the end of this month because it's the end of my company tax year, and creating a loss will allow me to claim back last years corporation tax. I am likely to wind up the company next year, and have calculated that by doing this I can wipe out all profits for 2012, 2013 and 2014 tax years. (I am only paying as much salary as IR35 requires, or in the case of apr 2014 onwards, as much as I can without incurring any PAYE. So I'm not paying unnecessary tax on salary in order to try and save corporation tax.)

To those who've mentioned cumulative method etc, that is exactly how I think it should be done, I've sent accountant a link to HMRC document saying it should be done like that, and when they said that their payroll software would not do it like that, I told them to just use Excel, or even just use the figures I'd calculated in Excel. It was at that point that they claimed it was HMRC who forbade them from changing from using a "monthly payroll" to an annual one.

I put the term "monthly payroll" in quotes, because I would have expected them to have used the term "monthly earnings period", so I don't know if we are still talking at cross-purposes.

Some googling I did a little earlier highlighted that for RTI, HMRC have put a temporary stop to people changing to annual salaries because they are overwhelmed by requests for this. This could be the issue, though it seems a bit odd that my tax can be doubled because HMRC are having trouble with their admin, rather than because of a change in the law governing taxation of directors.

Edited to add: I have no intention of paying £13000 tax, if I can't resolve this I will not pay the bonus this month and give up on reclaiming 2012 corporation tax.

PAYE on bonus - is this correct?