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Level 2

First pay run - director question

Hello,

 

The company in question has a sole director who has not been paid nor on the payroll since company registration a few months ago.

Now, company has signed up for PAYE and all is set to run the first payroll.

When adding this sole employee (who's also the sole director) in quickbooks, the system asks:

- Under 'employment details', about the 'Start date'. So that would be July 2018.

- Under 'tax information', if the person is a director. So that's a yes.

- Under 'tax information' too, about the 'appointment date' is. What should be entered here? The date the company was registered and became active (several months ago), or the date the director became an employee (July 2018)?

If it's the former, what difference does the appointment date make if the director was not an employee at that time?

And what difference is there between an employee who is a director, versus one who isn't (tax and PAYE wise).

 

Thanks for your time

 

Solved
Best answer July 20, 2018

Accepted Solutions
Level 7

First pay run - director question

Hi Cpltd,

 

I work in an accountancy practice and would be happy to shed some light on this for you.

 

The date of appointment is the date that appears on Companies House.

 

Directors contribute to National Insurance differently than employees. Directors get ALL of the NI allowance up front and will not pay contributions until their NIable earnings for the year reach the Primary Threshold (PT). This is £8,164 for 17/18, £8,424 for 18/19.

 

The appointment date is used to apportion this threshold for the year, therefore if the appointment date is 6th April the director will receive the full allowance for the year. However, if the director is appointed in July the threshold will be apportioned for 9 months of the tax year.

 

Once their earnings reach the PT they will pay 12% (assuming they are on NI rate A) on all their earnings until they reach the upper earnings limit (UEL). This is £45,000 for 17/18, £46,350 for 18/19.

 

A director is taxed in the same way as an employee.

 

I hope this makes sense. If you do have any questions please do not hesitate to private message me or reply on this thread.

 

Kind Regards,

Emily

View solution in original post

21 REPLIES 21
Anonymous
Not applicable

First pay run - director question

Hi cpltd,

 

Thank you for contacting the Community.

 

The appointment date would be the date the director became an employee (July 2018). If an employee is a director this means they do not pay NI until they have reached a certain threshold (£8,424 in 2018). For more information please visit HMRC's website here.

 

Please let me know if there is anything else I can help with. Smiley Happy

Level 2

First pay run - director question

Many thanks CarlyL.

 

But in that case, why does the system ask for both 'Start Date' and 'Appointment Date' if they are the same?

 

Sorry if I'm double checking, it's just that I don't want to be submitting incorrect information, as the director really was appointed to the company on the day it was registered (and had a tiny dividend payment since, from a small engagement - is that ok or did he have to be an employee since he's the sole person in the company). But he'll be an employee starting this July.

 

PS: does updating employee details in quickbooks before the pay run, submit again to hmrc? I've saved the details more than once, including now after your reply. I hope it only submits once the first payroll is run.

 

Anonymous
Not applicable

First pay run - director question

Hi cpltd,

 

Thank you for your response.

 

Are you using QuickBooks Online Payroll or PaySuite to pay your employee so I can look into the Start Date and Appointment Date fields?

 

As the director was paid by dividend before July they would not be classed as an employee. They will only become an employee when paid via payroll. The system will only send RTI submission to HMRC once the payroll has been ran. Any changes made within the settings/employee set up pages will not be submitted to HMRC unless you manually sent an FPS/EPS via the Taxes screen or payroll is ran.

 

Thank you, Carly.

 

 

Level 2

First pay run - director question

Hi Carly,

I'm using Quickbooks Online Payroll.

When editing an employee, you'll find one field under "employment details" and another under "tax information".

 

Best Regards

QuickBooks Team

First pay run - director question

Hi cpltd,

 

The "Appointment Date" is the date they become a director so if the Director had of been a employee before becoming a Director this would be that date. Where as in your scenario they are the director from the beginning which is their start date.

 

Thanks,

 

 

Level 2

First pay run - director question

Thanks Edward.

That's different to what Carly suggested :\

 

So you're saying if for example a person became a director on Feb 1 2018 and an employee on July 1 2018, then "appointment date" under "tax information" would be Feb 1, and "start date" under "employment details" would be July 1?

 

I fail to see though how this is relevant under quickbooks' "tax information" section, if the person was not employed prior to July 1?

I want to make sure that any submission does not suggest that the director has also been an employee since Feb, as it is not the case.

 

Sorry if I sound confused, but I really am Smiley Happy

QuickBooks Team

First pay run - director question

Hi Cpltd,

 

I'm the third person to jump in this, i'll be available tonight until about 6pm to answer your query, I have conferred with both Carly & Eddy on this.

 

You're right, you don't want any submission to suggest that the director has been an employee since February, as the director is the director.

 

Have you spoken to HMRC yet regarding this? I'd be curious as to their opinion. I don't think HMRC are completely neccesary, but they can sometimes offer guidance.

 

I am of the opinion to agree with my colleague @EdwardR, You would put the start date and director date to be the same. Personally, I would put the start date as the date the director became director, and the appointment date to be the same date.

 

Think of it this way, you could have a business active, where you are the director and only member of that business for a year, even longer sometimes before pulling a wage for yourself out, that doesn't change the date you started with the company, nor does it change the date you became director. The information our system is looking for is the real life information, so in the case of your example, i'd pick Feb 1 2018 for both start & appt dates.

 

Thanks,

Level 2

First pay run - director question

Thank you James.

 

Having read all 3 opinions and rechecked the quickbooks section labels, I'm inclined to believe that the employment start date should really be that when the director actually became an employee (so in the example I gave, that would be July 1). This is mainly because that section is asking when the employment started (not directorship), and generated a new unique payroll ID for that matter.

As for the tax information section, it asks if the person is a director and his appointment date. So judging by the wording, I'd say this should be when the company was incorporated. Although, I still fail to see what relevance that would have to the payroll if the person was not an employee up until now.

 

Any further inputs are always welcome.

I think this is the 4th time I edit the appointment date, and I hope it's not being resubmitted every time. It's not an RTI submission yet, just editing employee details.

QuickBooks Team

First pay run - director question

The advice that we would give to our customers, is that your employment start date is the date you became an employee, no matter if that was the same day you became a director, or ten years prior to the day you became a director. The appointment date is the date that employee became a director. If the employee start date is after the director start date; then i'll stick to my original advice - which is your QBO Should reflect real life, and that's what you put. However:

 

I am going to strongly advise you to send an email to your accountant, or to reach out to HMRC; as i feel this is a matter best answered by someone in a position of Authority. It's something that is an issue of business compliance, because you don't want HMRC to get the wrong information.

 

 

I understand that you can be classed as having Directorship without having being classed as an employee. My hesitance to agree that the employment start date is after the director appointment date is because i've been doing this for over a year now, and working solely on Payroll & VAT for the last 9 months, and as far as i can remember, i've only ever seen accounts (10 + per day) where the employment start date was either before, or on the same day as the date they became appointed as director.

 

@EmilyMockett - Perhaps you can lend us your accountancy knowledge here? What should this customer do? Is there an answer you can help us come too?

 

Don't worry about editing the appointment date, it doesn't submit - Imagine the number of fines if it did! Smiley Surprised  - You really have to specify the system to submit to HMRC< which is the last step of running payroll.

Level 7

First pay run - director question

Hi Cpltd,

 

I work in an accountancy practice and would be happy to shed some light on this for you.

 

The date of appointment is the date that appears on Companies House.

 

Directors contribute to National Insurance differently than employees. Directors get ALL of the NI allowance up front and will not pay contributions until their NIable earnings for the year reach the Primary Threshold (PT). This is £8,164 for 17/18, £8,424 for 18/19.

 

The appointment date is used to apportion this threshold for the year, therefore if the appointment date is 6th April the director will receive the full allowance for the year. However, if the director is appointed in July the threshold will be apportioned for 9 months of the tax year.

 

Once their earnings reach the PT they will pay 12% (assuming they are on NI rate A) on all their earnings until they reach the upper earnings limit (UEL). This is £45,000 for 17/18, £46,350 for 18/19.

 

A director is taxed in the same way as an employee.

 

I hope this makes sense. If you do have any questions please do not hesitate to private message me or reply on this thread.

 

Kind Regards,

Emily

View solution in original post

Level 2

First pay run - director question

Thank you all for the feedback.

 

@EmilyMockettthis indeed makes sense and is in line with what @Anonymous mentioned about the NI rates being calculated differently for directors.

 

So we all agree that "appointment date" under "tax information" is the directorship start date (matches company house, and in this case the company incorporation date).

 

This just leaves the "employment details: start date" bit, which I assume @EmilyMockett you agree should be July 1, i.e. when the director became a PAYE employee.

 

As an accountant, I'd also appreciate your feedback about a scenario where the company has one sole director and no employees, and in the first few month of its inception, it made a small profit from the director doing consultancy for a couple days. That profit (gross figure minus expense and 19% corporation tax) was then sent to the director as dividend.

I read online that this is ok, but I am double checking with you, since there was no remuneration or employment contract -- would that still be ok?

Level 1

First pay run - director question

I know this is a really old thread but I wanted to know, if you are still around, what conclusion you came to @confused_ltd ?

 

I am in the same predicament however Quickbooks is not allowing me to put an earlier appointment date than the start date!

 

 

 

QuickBooks Team

First pay run - director question

 

Hi BWMEA,

 


Thanks for joining this thread - the start date is the date the employee began with the company, if the employee was a director from the beginning then the appointment date would be the same as the start date and will be the date which appears on Companies House. If the employee worked within the company before becoming a director then the start date would come before the appointment date. Please get back to me below if you have any queries. 🙂

Level 1

First pay run - director question

Thank you for your reply. 

 

What if a company director appointed themselves as director back in 2017 but is only now putting themselves on payroll to take a salary and therefore their employment start date would be October 2020? Then a second director joined the company in July 2020 but again became an employee in October. 

 

My only worry with this is if I put the start and appointment date as when they became directors then HMRC will think they were under PAYE from that date and an FPS should have been filed every month since then. Wouldn't the 'start date' under the employment section be when they became an 'employee', so this month? But then due to this I can't put the appointment date any earlier than the start date. 

 

I spoke to HMRC who seemed to think appointment date doesn't show up on the FPS and therefore start date is the only important piece of information?

QuickBooks Team

First pay run - director question

Hello BWME, 

 

Thanks for coming back to us here, 

 

So you would but the appointed date as 2017 for the one and July 2020 for the other then the start date would be October 2020 date for them both. 

 

Yes HMRC is correct only the start date will show for directors, not the appointment date. The appointment date is just how we work out what needs to be submitted.  

Level 1

First pay run - director question

Thank you for your reply!

 

The only issue with this is when I put the start date as October 2020 the appointment date automatically changes to the start date. No matter how many times I try and change it, it reverts back. The only way to enter the appointment date correctly is to have the start date as the appointment date which doesn't make sense. I can't see how I am entering information incorrectly for this to occur?

 

QuickBooks Team

First pay run - director question

Hi BWMEA, 

 

So that the NI is calculated correctly for this tax year, I would suggest that the start date would be October 2020 - as it's not possible to have a start date which comes after the appointment date, I would enter this as the same date though you may wish to run this by HMRC first. Please get back to us below if you have any other questions or concerns on this! 

 

Thanks

Level 1

First pay run - director question

Thank you for your reply. 

 

I have been in contact with HMRC who said they don't get sent any information on appointment dates via the FPS so it is purely for quickbooks. However, when I enter the start and appointment date as October, which I plan to do as I see no way around it, I'm wondering if quickbooks will calculate the tax/NI free allowance from the start date and not from the beginning of the tax year (for one director) and July (for the other)? This way quickbooks will automatically deduct NI contributions when the pro-rata amount is used up despite the directors being entitled to a larger allowance? 

QuickBooks Team

First pay run - director question

Hello BWMEA, 

 

Thanks for coming back to us, 

 

So Quickbooks calculates it form the start date not by from the tax year date. 

Level 1

First pay run - director question

So in that instance one director (who is entitled to a full years tax/ni allowance) will start being deducted tax and NI once they reach the limit of quickbooks calculated pro rata allowance (October - April) which won't be correct?

 

I am also planning to temporarily state their salaries are higher in quickbooks to allow me to pay them their full allowance over 6 months/instalments instead of 12 to utilise the full amount by April 5th. Then reducing their salary to the normal amount in the new tax year so the 12 monthly payments equate to the same. 

QuickBooks Team

First pay run - director question

Thanks for adding more details about the issue, BWMEA.


In QBO, we have two methods on how to calculate the director’s NI. You can select Annual or Alternative. Each one is designed based on how often you pay the employee. Make sure to choose the calculation that fits the director's payroll frequency. For more details, check out this guide: Directors National Insurance Overview and FAQ.


In regard to stating a higher salary, I suggest consulting for further assistance. They can recommend on how to pay the allowance (over six months installments). This will also ensure your payroll information is in order.


 I’m also adding a link for additional resources. It covers all the information about national insurance for company directors: HM Revenue & Customs.


Don’t hesitate to visit the Community again if you need help with QuickBooks. I’ll be right here to assist further. Have a great day ahead.