Adrian Mooy & Co - Accountants Derby

Many director-owners of companies own the commercial property from which their company trades. The reasons for this vary and could be historic e.g. the business was initially run as a sole trader and is now trading as a company. However, most company owners hold their business premises personally so that if the company should become insolvent, a property owned by the director will usually be safe from the liquidator and any creditors (unless fraud or negligence is involved).

Usually the original reason for personal ownership has nothing to do with income tax but charging the company may prove to be more or as tax efficient than withdrawing money in the form of a dividend depending on the individual's marginal income tax rate. Whether charging rent is tax-efficient needs to be looked by taking into account the immediate tax position of both the director and the company, but also the future capital gains tax (CGT) position when the property or the company is sold.

Benefit to the director

The main benefit for the director is that, unlike dividends, there is no legal requirement for the company to have sufficient distributable profits for the payment to be made. In addition, as the payment is not in the form of salary or a bonus no NIC charges will be due for either the director or the company. Further, tax relief can be obtained against rental income from the commercial property should there be a mortgage on the property. The 'downside' is that the director will be liable for income tax on rent received less rental expenses at his or her marginal tax rate. Benefit to the company

The company is allowed full corporation tax relief on payments made and there is no employer NIC cost (as not salary or a bonus).

On sale of the company

If the company owns the property problems could arise should the company be sold. Many buyers may not also want to buy the premises as they may have their own. However, by holding the premises personally outside of the company, the advantage is that the purchaser can buy just the trade, without also buying the premises.

If there is a qualifying disposal of shares and an 'associated asset' is also sold at a gain, it may be possible to claim Business Asset Disposal Relief (BADR). The asset needs to have been owned by a shareholder and be in use by their 'personal company' at the time the business has ceased or part or all has been sold, BADR is available on disposals of business assets, reducing the rate of CGT on qualifying gains to 10%, subject to a £1 million lifetime limit. However, by charging full market rent all relief is lost as the property will count as an investment asset. If the company pays rent lower than the market rent or has paid rent since 6 April 2008 (when the rules changed) the proportion of gain on which BADR can be claimed is restricted in proportion to the amount of rent paid.

Although Family Investment Company's (FIC) have been around for several years, awareness of the flexibility that such a vehicle affords has been growing in recent years. The use of such companies is particularly attractive to director-owners of family businesses who have children, enabling parents to retain control over assets whilst accumulating wealth in a tax efficient manner and facilitating future succession planning.

What is a FIC?

A FIC is a bespoke vehicle which can be used as an alternative (or in addition) to a family trust. It is a private company that invests rather than trades (the investments typically being equity portfolios or property). The shareholders are family members taking advantage of the use of Alphabet shares enabling each direct descendent family member to be allocated a different class of share.

Usually a FIC is set up with a founder share held by the individual(s) providing the capital, being either a cash loan or assets where no chargeable gain has yet to accrue. If a cash loan, the FIC uses the money to acquire assets (e.g. property), which generate a return. Such income is either re-invested within the FIC or can be used to repay the original loan tax-free.

'Alphabet shares' enables family members to have different levels of control over company decisions, rights to receive dividends and entitlements to the company's capital value. In the incorporation of a FIC, the individual setting up the company could still be a Director and preferential Shareholder holding 'A' shares. Such a shareholder will have the right to appoint a director and vote at general meetings (and therefore hold control of the company), however, they must have no entitlement to dividends or to any return of capital. Other family members and often family trusts are then brought in as shareholders, each holding one ‘B’ share each. These ‘B’ shares have no voting or control rights but full entitlement to any dividends and/or return on capital. The shares can be held in trust if the child is a minor.

Benefits of a FIC

should assets rather than a cash loan by transferred into the FIC, after seven years the value of the money or property transferred falls outside the transferors' estate for IHT purposes. However, it is important that no beneficial interest in the company is held.

there is no upper limit in the value of assets that can be placed into a FIC whereas there is a limit of £325,000 in placing capital into a Lifetime Discretionary Trust before any IHT is charged. Any value transferred into a trust above this amount is taxed at 20%.

being a company a FIC is subject to corporation tax on the income received which (currently) is at a lower rate than income tax. Where the property is residential mortgage interest is fully reclaimable and not restricted to the basic rate tax credit as applied to personally held buy-to-let property holdings.

the company shareholders will be liable to tax when profits are extracted. However, a FIC offers the possibility of allocating dividend payments, which could potentially be spread amongst family members tax-efficiently;

the company's article of association can be set up to include specific clauses that protect the shares in specified circumstances (e.g. by preventing shares from being transferred outside of the family.)

Tax trap

Transferring assets (as opposed to cash) into a FIC can have CGT consequences for the donor and/or Stamp Duty Land Tax in the case of property used to subscribe for shares in the company. As such these costs can render the use of the FIC structure prohibitive.

For many years, working out whether tax savings could be achieved by incorporation was relatively straightforward. Once profits reached a particular level, transferring the trade to a limited company and using profit extraction strategies would save a lot of money; the larger the profits, the bigger the saving. This all changed in 2016 with notional tax credits for dividends being abolished such that the question of whether to incorporate depended on a combination of factors. Now with the increase in dividend tax rates as from April 2022 the question as to whether to incorporate (or disincorporate) has even more relevance as in certain instances it is more tax efficient to operate as a sole trader or in a partnership. However, tax savings can still be achieved particularly if there is more than one director-owner and if not all profits are withdrawn. As ever it all depends on the calculations.

Tax savings on incorporation - When you are looking to work out whether incorporation is financially worthwhile, you are looking at the income tax situation for the individual director-owner and the corporation tax liability to give a total tax saving figure. The table below shows the savings per level of income. The calculation assumes that all profit is withdrawn.

Example 1 – Income gains on incorporation

2022/23

Profit.     Sole trader net         Company owner net.      Extra

             after tax and NIC.        after tax and NIC       received

                        £                                   £                              £

£20,000       17,520                        17,810                        290

£30,000       24,495                        25,201                        706

£40,000       31,470                        32,592                     1,122

£50,000       38,445                        39,983                     1,538

£60,000       44,156                        47,312                     3,156

£70,000       49,830                        52,678                     2,848

£80,000       55,505                        58,045                     2,540

£90,000       61,180                        63,411                     2,231

£100,000     66,856                        68,777                     1,921

£125,000     76,043                        81,554                     5,511

£150,000     90,203                        90,413                       210

£200,000   116,078                       116,078                         nil

The table shows that as a 'rule of thumb' if all profits are to be withdrawn and the Employment Allowance is not available (as would usually be the case with a sole director-employee) then for 2022/23 incorporation is generally not worthwhile for profits under £40,000 (bearing in mind the additional work and cost involved in preparing more detailed accounts, running a payroll and submitting additional returns to both Companies House and HMRC). However, once profit exceeds £60,000, the situation changes in favour of incorporation. The savings figure then drops at £70,000 profit, becoming exactly level at £200,000, due to the large 'jump' in the higher dividend rate of 33.75% in comparison with the basic rate of 8.75% and, importantly, the abatement of the personal allowance on income over £100,000. The tax savings reaches highest if the profit is £125,000 because at this profit, all the personal allowance of £12,570 for a self-employed taxpayer is cancelled. In contrast, a company profit of £125,000 means a dividend and salary available of £103,170 – allowing £10,985 personal allowances to be deducted.

Other considerations - There are various reasons why the above figures should be used as a guide only. The main one being that they assume all the profit is withdrawn which is not the case with many companies. Pension contributions can be a valuable method of extracting profits with no personal tax implications for the director-owner and tax relief for the company.

In addition, the calculations assume a sole director-shareholder but if the company could be set up with a spouse or civil partner then including two personal allowances, two basic rate bands and two dividend allowances in the mix could still yield large savings.

When deciding whether to incorporate it should not be forgotten that there are other vehicles of operation that may produce higher tax savings in comparison. A partnership could be a more tax-efficient option for those who are married or civil partners because of the availability of double personal allowance and double basic rate band (assuming that there is no other income). However, bearing in mind the protections offered as a company may lead the owner to look at setting up a limited liability partnership.

Finally, it must be said that the above figures could all change in the next few weeks as whoever is the new incumbent of Number 10 may reduce tax rates or National Insurance contributions in the next 'emergency budget'.

Gifting assets during one’s lifetime is never an easy proposition even though by doing so inheritance tax (IHT) may be reduced in the long run. The dilemma is well-known, namely, that to reduce IHT you have to draw capital out of your estate but if you do - once it's gone, it's gone. Further, any capital that remains in the estate will usually increase in value thereby increasing the final IHT bill assuming that the monies are not needed to be otherwise spent (e.g. care home fees).

Gifts out of income - Arguably the cost-effective way to make IHT-free gifts and prevent unused income accumulating as capital liable to IHT is to make the gifts out of income. Such transfers are considered exempt transfer if the following conditions apply:

the payment is shown as part of the transferor’s normal expenditure (i.e. regular or habitual payments)

Gifts must be made out of regular income (i.e. out of disposable income or surplus income after paying taxes and all other living expenses).

The transferor must retain normal income to maintain his/her normal standard of living.

The smaller exemptions - Advantage should be taken of the smaller reliefs available e.g. the annual exemption of £3,000 potentially saves £1,200 IHT each year, and any number of smaller £250 gifts can also be made in any one year free of IHT. There are other exemptions, although these are aimed at specific events and are of relatively restricted benefit in tax saving terms. For example, £5,000 can be gifted by a parent on the marriage or civil partnership of a child, £2,500 where the transferor is either a remoter ancestor than a parent or is one of the parties to the intended marriage or civil partnership, or £1,000 in respect of any other transferor.

Gifting monies above such amounts can be made IHT-free as long as the donor lives for more than seven years (a 'potentially exempt transfer'). However, should the donor die within that period, HMRC will treat the money as part of the death estate and charge IHT accordingly. Gifts given in the 3 years before death are taxed at the full rate of 40% however, gifts given between three and seven years before death are taxed on a sliding scale known as ‘taper relief’.

Transfers to UK spouses are exempt (for CGT as well as IHT) and transfers to non-UK spouses are exempt up to £325,000.

Trusts - Trusts can be an effective method of taking capital out of the estate so IHT is reduced but again the amount that can be transferred tax-free is limited. Should the trust be created during the settlor’s lifetime, IHT is due at 20% of the transfer value more than the Nil Rate Band (NRB) amount (£325,000 for 2022/23 - frozen until 5 April 2026). Therefore, placing an asset valued at less than the NRB will not produce a tax charge if the full NRB is available. PETs are aggregated with the transfer to determine the amount remaining of the NRB and if this total figure is higher, then the tax charge is on the excess amount only.

Insurance products - The insurance industry offers products that can ensure no or minimal IHT is paid in the form of discounted gift trusts, or investment funds. However, these products are inflexible and costly to set up and run. Under such trusts the amount gifted is invested into a life insurance investment bond and transferred/gifted to a Discounted Gift Trust established at the same time. The transfer constitutes a PET for IHT purposes. A regular income for the settlor can be achieved by permitting regular withdrawals determined at the outset and paid at a pre-determined frequency during the settlor's lifetime -- these payments cannot be subsequently altered.

Open ended loans - As an alternative to insurance products or making a straight gift to the intended beneficiary, the donor could gift an interest-free, open-ended loan, which the beneficiary could use to buy investments. The value of such planning is that the income generated by the investment forms part of the donee's estate for IHT purposes rather than the donors. A loan can also be used in conjunction with the annual exempt gifts allowance whereby up to £3,000 is written off each year as this counts as a gift and reduces the amount to be repaid.

Otherwise leave everything to charity or a political party. Gifts, during lifetime or on death, to most UK charities or registered community amateur sports clubs are IHT exempt, as are gifts to any UK political party (as long as at the last election it had either at least two MPs in the House of Commons or one MP and received at least 150,000 votes).

The supposed reason why HMRC issue penalties is to deter future late payment of tax and/or late submission of tax returns. There are set dates for self assessment returns, payment, VAT and corporation tax etc., but submissions for payroll under the real time information (RTI) system do not have deadlines on set dates. Instead, the law states that submission must be “on or before making a relevant payment.” HMRC can impose a penalty where an employer does not file “on or before.” The penalty increases depending on the number of employees in the PAYE scheme. The penalty starts at £100 a month for late filing where there are one to nine employees and rises to £400 a month for 250 or more employees. Further penalties are charged for those filing over three months late. However, there is an exception for the first failure in the tax year.

Late filing penalties are not supposed to be levied if returns are submitted early. However, recently a company named Quayviews Ltd found that this is not always the case. Quayviews had been late in submission previously, therefore, to ensure that this would not happen again they 'batch filed' submissions for the tax months 7, 8, 9 and 12, submitting all in tax month 5. HMRC’s Basic PAYE Tools software allowed early filing, and Quayviews thought nothing was wrong as they received an acknowledgement of submission. However, HMRC issued a late filing penalty for tax months 7, 8 and 9 (why none was issued for month 12 was not explained). The company appealed and the case ended up at the First Tier Tribunal.

Although it was acknowledged that the returns had been received, HMRC’s National Insurance and PAYE Service (NPS) was unable to process the returns and allocate any FPS to a specific tax month. HMRC confirmed that it had issued penalties because in their view the company had no 'reasonable excuse' for the returns not being filed within the relevant tax month. The Tribunal disagreed and found for the company stating that the company did have a reasonable excuse for a number of reasons not least that HMRC's guidance states that a FPS must be filed “on or before.”  In addition, HMRC’s Basic PAYE Tools allows files to be submitted early without indicating that 'early' could mean 'too early'.

Based on this case employers need to be aware that in HMRC's view a late filing occurs when a FPS is submitted late, that is, not on or before payday or HMRC does not receive the FPSs that they expected to receive. Non-filing is where HMRC does not receive the FPS within the tax month, between the 6th of one calendar month and the 5th of the next.

Therefore, although it would appear that HMRC's systems do not comply with what is stated in law, to ensure no penalties are levied, RTI returns should not be made before the beginning of the relevant tax month; rather wait until the relevant month has begun before submitting each return. Also be aware that if a 'success' messaged is received whichever payroll software is used, it means that the submission has been received and not that it is correct.

HMRC can issue a determination when a taxpayer has failed to submit a tax return. The determination is HMRC's formal calculation of tax that it calculates as being due. In arriving at the amount HMRC will consider any information it has available (e.g. on a P60 submitted by an employer).

There is no right of appeal against a determination and unless the submission of a return supersedes it, the determination will stand, and the tax shown as due must be paid. A determination does, in effect, stand in the place of an actual return for the amount of tax payments due and the calculation of any interest on unpaid tax. Therefore the due date for tax payment is the date which would have applied if the return had been delivered by the filing date.

A tax return displacing a determination, must be made/filed within three years from the due filing date for the tax return or if later, within 12 months of the determination date. If the return is not filed within this period, the tax charge created by the determination stands. Any related interest, surcharge and payment on account calculations will be automatically amended to reflect the figures declared on the replacement tax return. Importantly, the issue of a determination enables HMRC to commence formal proceedings to recover any late paid tax.

With regard to any underpayment of PAYE, a determination will be issued against an employer for a failure to operate PAYE correctly and require any under payment of tax and NIC to be restored by the employer; any underpayment not being sought from the employee.

It should be noted that determinations are usually only issued when informal requests for payment of the underpaid tax have been ignored.

Once a Revenue Determination has been raised HMRC's Manual confirms that the taxpayer is given 30 days to file the return before any enforcement action is taken, such as Distraint or County Court action. Allowing the taxpayer 30 days to send in the return is the Debt Management Department policy, not a legislative requirement.

'Special overpayment relief'

Where HMRC makes a determination, but the tax charged is excessive, a special overpayment relief is available if certain conditions are satisfied. Unlike normal overpayment relief claims, there is no time limit for claiming this special relief. However, HMRC detail three conditions under which compliance may be difficult to achieve as follows:

 Condition A - it would be “unconscionable” for HMRC to seek to recover the amount which has been charged by the determination (or refuse to repay it, if it has already been paid);

Condition B - The person’s tax affairs are otherwise up to date, or arrangements have been made to HMRC’s satisfaction to bring them up to date as far as possible; and

Condition C - The person has not previously claimed special relief or if previously claimed are exceptional circumstances for a further claim to be made.

Condition A is the one more likely to be difficult to fulfil. HMRC defines ‘unconscionable’ as “completely unreasonable” or “unreasonably excessive.” Circumstances in which the unconscionable requirement in Condition A above may be satisfied include where a person is suffering from an illness which makes tax compliance difficult or has not received HMRC notices for reasons outside their control or is insolvent (and where pursuing the determination would be detrimental to other creditors).

If you operate your business as a personal or family company, you will need to extract some or all of the profits if you wish to use them personally. When it comes to tax, not all profit extraction methods are equal. While personal circumstances will dictate the most efficient way for you to extract profits, the following five extraction methods should be considered as part of a tax-efficient profit extraction strategy.

Method 1: salary - Paying a small salary can be tax-efficient where the recipient has not used their personal allowance elsewhere. Paying a salary that is at least equal to the lower earnings limit for National Insurance purposes (£6,396 for 2022/23), will ensure that the tax year is a qualifying year for state pension purposes; this can be useful where the recipient does not already have the 35 qualifying years needed for a full state pension.

For 2022/23, the optimal salary will depend on whether the National Insurance Employment Allowance is available to shelter any employer’s National Insurance on the salary. Assuming the personal allowance remains available in full, the optimal salary where the Employment Allowance is not available (as is the case in a personal company where the sole employee is also a director), is one equal to the primary threshold for 2022/23 of £11,908. If the Employment Allowance is available (or one the higher secondary Class 1 National Insurance thresholds applies), the optimal salary is one equal to the personal allowance, set at £12,570 for 2022/23.

Method 2: dividends - Dividends are paid from post-tax profits, and the profits from which they are paid have already suffered corporation tax. As all taxpayers benefit from a dividend allowance (set at £2,000 for 2022/23), where this remains available, paying a dividend up to this amount allows profits to be extracted free of any further tax. Once the optimal salary has been paid and the dividend allowance has been used, if further profits are needed outside the company, it is generally preferable to take dividends rather than additional salary as the dividend tax rates are lower and there is no National Insurance to pay on dividends.

Remember, dividends must be paid in proportion to shareholdings. However, using an alphabet share structure preserves flexibility. Remember, dividends can only be paid if you have sufficient retained profits from which to pay them.

Method 3: rent - Many personal or family companies are based at home. The company can rent a room from the director and pay rent for the privilege. This can be tax efficient, as the company will benefit from a deduction for the rent paid when calculating its profits for corporation tax purposes. While the rent is taxable in the hands of the director, if the director does not have other rental income, he or she may be able to benefit from the property income allowance to receive £1,000 of rent tax-free. Paying rent has the added advantage that there is no National Insurance to pay.

Method 4: pension contributions - The company can also make pension contributions on behalf of the director (and/or his or her family). The company will usually be able to deduct the pension contributions in full when calculating its profits. Providing the contributions do not exceed the available annual allowance or take total tax relieved contributions above the level of the lifetime allowance, there will be no tax charges on the recipient.

Method 5: benefits-in-kind - It can be particularly tax-efficient to provide directors and family employees with exempt benefits in kind, such as a mobile phone or workplace parking, as the recipient will enjoy the benefit tax-free, while the company can deduct the cost in calculating its taxable profit. Where an exemption applies, there is no Class 1A National Insurance for the company, and most benefits in kind are free of employee National Insurance.

Benefits-in-kind can still be tax efficient even if a tax charge applies; for example, it may be beneficial for the employee to have an electric company car rather than be given more salary from which to fund the car. Providing a benefit rather than additional salary will also save employee’s National Insurance as most benefits-in-kind are liable to Class 1A (employer-only) rather than Class 1.

You must register for VAT if your VAT taxable turnover for the last 12 months exceeded the VAT registration threshold of £85,000, or if you expect your turnover in the next 30 days to exceed this amount. However, while you are not obliged to register for VAT if your turnover is below this level, you can choose to do so voluntarily.

Is this beneficial?

Need to charge VAT

If you are VAT registered, you will need to charge VAT on taxable supplies that you make. Unless you make zero-rated supplies (for example, zero-rated foods), this will make your products more expensive to the purchaser. If predominantly you supply to VAT-registered businesses, this may not be an issue as they will be able to recover the VAT charged. However, if you supply to individuals, charging VAT may make you less competitive against businesses that are not VAT-registered. If you supply standard-rated goods, you will need to add on 20%.

Ability to recover input VAT

One of the main advantages of registering for VAT voluntarily is that you will be able to recover the VAT associated with making taxable supplies (including those that are zero-rated). However, if you make exempt supplies, you cannot recover the associated input tax.

Businesses that make zero-rated supplies only or mainly should consider registering for VAT voluntarily if their turnover is below the VAT registration threshold as they will be able to recover any associated input tax, but the imposition of VAT at the zero rate will not make their supplies more expensive.

Compliance obligations

Registering for VAT comes with an associated compliance burden. All VAT-registered traders are now within Making Tax Digital (MTD) for VAT. Consequently, they must maintain digital records and file VAT returns using software that is compatible with MTD for VAT. This will involve both time and costs, which may outweigh any VAT recovered.

Do the sums

To assess whether it is worthwhile registering for VAT voluntarily, there is no substitute for doing the sums to see whether what you could potentially recover is worthwhile.

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Inheritance tax is often described as a voluntary tax. While most of us do not know in advance when we are going to die, there are steps that you can take to reduce the amount of inheritance tax on your estate. Here are five suggestions.

Leave everything to your spouse or civil partner

The inter-spouse exemption means that there is no inheritance tax to pay on anything that you leave to your spouse or civil partner. On their death, their estate can claim the unused portion of your nil rate band and your residence nil rate band, meaning that these are not wasted. The allowances allow a married couple or civil partners to, between them, leave £1 million free of inheritance tax.

Alternatively, you can leave assets to the value of your nil rate band, and a main residence or share in a main residence to your children or direct descendants, and anything in excess of this to your spouse or civil partner. This too will ensure that there is no inheritance tax to pay on your estate.

Give away cash and assets early

Gifts made more than seven years before your death fall out of charge for inheritance tax purposes. Also, taper relief means that the rate of tax payable  on assets gifted made more than three years before your death is reduced on a sliding scale. Lifetime gifts are known as potentially exempt transfers and remain exempt if you survive for at least seven years after making the gift. However, if you do die within seven years, lifetime gifts come into charge. This may give rise to an unintended problem in that the nil rate band is applied chronologically, meaning that it may shelter a lifetime gift which would, if taxable, benefit from generous taper relief, rather than a death bequest which is chargeable at 40%.

The earlier gifts are made, the greater the likelihood that they will fall out of charge.

Make gifts out of income

An inheritance tax exemption means that it is possible to make lifetime gifts which are not treated as potentially exempt transfers by making them out of your income. To benefit from the exemption, the gift must be made as part of the normal expenditure from the income of the donor and, after making the gift, the donor must be able to maintain their standard of living. This exemption could be used, for example, to pay for your grandchildren’s school fees or your child’s rent  or to set up a regular standing order to help meet your children’s living costs.

Use the annual and gifts exemptions

There are a number of specific inheritance tax exemptions that allow you to make small gifts that fall outside the scope of inheritance tax. These exemptions can be used in addition to the gifts from income exemption outlined above. Further, they apply if the gifts are made from capital.

The annual exemption allows you to give away £3,000 of gifts each year. You can use the allowance to make a single gift to one person, or several gifts totalling not more than £3,000. If you do not use all of the exemption for a tax year, you can carry the unused portion forward to the following tax year. However, if it is not used by the end of that tax year, it is lost.

The small gifts allowance allows you to make as many gifts as possible of up to £250 per person each tax year. However, the recipient cannot benefit from more than one allowance (so you cannot give £3,250 to one person using the annual allowance and the small gift allowance). You do not need to count birthday and Christmas gifts, which are exempt.

You can also make tax free gifts on the occasion of a wedding or civil partnership. The exempt amount depends on your relationship to the recipient – £5,000 for a child, £2,500 for a grandchild or great-grandchild and £1,000 for any other person.

Make a charitable bequest

Your estate can benefit from a reduced rate of inheritance tax of 36% if you leave at least 10% of your estate to charity. Gifts to charities are themselves exempt from inheritance tax.

Employers must act as a tax collector for HMRC, deducting tax, National Insurance and, if applicable, student loan deductions, from their employees’ pay and pay these over to HMRC with their employer’s National Insurance contributions. The payments must reach HMRC by 22nd of the following tax month where payment is made electronically, and by the earlier date of 19th of the following tax month where payment is made by cheque.

As penalties are charged if the payments are made late for more than one month in the tax year, it is important that these deadlines are not missed. A new recurring direct debit facility may help employers to meet the payment deadlines and avoid penalties.

Payment options

There are currently a range of payment options available to employers to pay their PAYE. Payment methods include online banking, using a debit card or a corporate credit card or at a bank or building society. Cheques can also be sent in the post, but an earlier payment deadline applies.

It has been possible to pay by direct debit, but only as a one off. However, this is changing, and from 19 September 2022, employers will be able to set up a recurring direct debit to pay their PAYE.

Payment via variable direct debit

Employers wishing to pay by direct debit each month will need to set this up through their business tax account and the Employer’s PAYE Online service.

A new option will be added to the employers’ liabilities and payments screens, which will feature the option to ‘set up a direct debit’. This will provide HMRC with authorisation to collect the PAYE and NIC that they owe, as shown on their RTI payroll submission, direct from the employer’s bank account.

Once the employer has set up a recurring direct debit facility, the link will change to ‘Manage your direct debit’. This will allow the employer to view, change or cancel their direct debit online.

It should be noted that only the employer can set up, amend and cancel the direct debit; this is not something that can be done by their agent on their behalf.