When to transfer your salary
We generally run payroll for directors on the 5th of each month to fall in line with the tax year. You can take your salary on or after this date. Alternatively you can let your salary build up and take it later in a lump sum.
If you do not take your salary, your accountant will adjust your accounts to show it in the director’s loan account (the amount the company owes to you). You can then take this any time in the future tax free.
How to transfer my salary
If you operate a business bank account (recommended) then yes, you can simply make a transfer to your personal account each month. Some clients will set up a standing order to their personal accounts until the new tax year (5th April), when the recommended salary will usually increase due to increases in thresholds.
Taking the most tax efficient salary
The personal allowance is still £12,500 for the 2020/21 tax year, but changes to employee and employer National Insurance rates mean that the most tax efficient salary for sole directors, or for two or more directors, is different.
For a sole director on the payroll we recommend taking a salary of £732.33 per month (£8,788 per annum) for the 2020/21 tax year. It is the most tax efficient amount if there is only one director taking a salary from the company (as the employer’s NI allowance does not apply)
If there is more than one director or employee, then we recommend taking a salary of £791.66 (£9,500 per annum) for the 2020/21 tax year.
For most owner-managed companies, we recommend taking a salary up to the National Insurance (NI) threshold which is lower than the tax threshold. There are a number of benefits to this:
- No NI is payable so you won’t have to worry about paying HMRC every month
- Our fees are lower as there are no calculations to be made on the payslips
If the company has multiple directors/staff being paid a salary, then the employer’s NI allowance will apply. It can be slightly more tax efficient, assuming the employer’s NI for other staff is not more than £4,000 per annum. However, our fees would increase slightly and you would need to make more payments regularly to HMRC.
Please get in touch if you would like to discuss this further on 020 3355 4047.
Your pension and other benefits
As long as your salary is above £503 per month you will have ‘deemed contributions’ made on your behalf even though you are not actually paying HMRC any NI. These deemed contributions will count towards your state pension and other benefits.
If you are being paid at or below the NI threshold there is no calculation to perform and therefore payslips are generally not required. We charge a fee for this type of payroll and will supply you with a P60 at the end of the tax year for your records.
If you would like payslips, they can be requested but our monthly fee would increase to manage this for you each month.
Finding your Employer's Reference Number and Accounts Office Reference Number
These reference numbers are issued to you when the payroll scheme is set up. We require these reference numbers to register as your advisor with HMRC for your payroll and in order to make your payroll submissions
If you have set up the payroll scheme yourself, you should have received them through the post. If you have lost them, please contact the HMRC employer’s helpline on 0300 200 3200. If we are setting up your payroll then simply pass on the references once you have received them.
Using our office address when registering for payroll
When registering your company as an employer, HMRC require that you use the address where the business actually takes place. This means that using our address or a post-box/serviced office address is not possible.