Do directors need to be paid through payroll?
Directors must generally be paid through payroll, with PAYE and National Insurance deducted, unless exceptional circumstances apply. The only situation where a director can invoice their own company is if they already operate a separate business providing similar services to other clients, and the service provided to the company is clearly distinct from their role as a director. For example, HMRC cites a practicing solicitor who is also a director of a retail company and separately provides legal services to that company.
However, any work that relates to the duties of a director, or any service for which the individual does not already have an established business, must not be invoiced and it must go through payroll.
If the following apply, the individual is likely to be treated as an employee:
- The company controls how the work is don.
- The individual personally performs the work
- There is a notice period (explicit or implied)
In general, if you “look like” an employee, you probably are one. Indicators include:
- Being a named director
- Having a company email address
- Acting as a point of contact
- Working similarly to other employees (in terms of hours, location, or methods)
How much holiday should I give my employees?
There is a minimum right to paid holiday, but you might want to offer your employees more than this. The main things you should know about holiday rights are that:
- Employees are entitled to a minimum of 5.6 weeks paid annual leave or 28 days for someone working five days a week
- Part-time workers are entitled to the same level of holiday pro rata (so 5.6 times your usual working week, eg 22.4 days for someone working four days a week)
- Employees start building up holiday as soon as they start work
- You can control when your employee take their holiday
- Employees should be paid their normal pay for holiday
- When employees finish working with you they get paid for any holiday they have not taken
- Bank and public holidays can be included in your minimum entitlement
- You continue to be entitled to your holiday leave throughout your ordinary and additional maternity leave and paternity and adoption leave
What is the Minimum Wage?
Details of the current National Minimum Wage and National Living Wage rates can be found here.
What is the Employment Allowance and can I claim?
Employment Allowance allows eligible employers to reduce their annual employer’s National Insurance liability by up to £10,5000. This relief is applied through your payroll system and reduces the amount of National Insurance you pay each time you run payroll, until the allowance is used up or the tax year ends. To qualify, you must be a business or charity with at least one employee (other than a sole director). There are other exemptions and Green Accountancy checks these for all payroll clients.
Why do my National Insurance contributions fluctuate?
If your National Insurance contributions vary from month to month, it’s likely because you If your National Insurance contributions vary from month to month, it’s likely because you are a director. Unlike regular employees, a director’s NIC is usually calculated on a cumulative annual basis. This means that no NIC may be due in the early part of the tax year until your total earnings exceed the annual threshold, after which contributions begin to apply.
What if I do not owe any PAYE or NIC?
If you do not owe HMRC anything is PAYE and NIC for one month you still are required to submit a nil RTI return to HMRC. Green Accountancy will always do this for you without you needing to ask if we look after your payroll.
Do I need a P11D?
If your company is registered for PAYE and provides any reportable benefits or expenses to employees or directors, such as a company car or private health insurance, you must complete and file a P11D form with HMRC by 6 July following the end of the tax year. Green Accountancy supports its payroll clients by sending out an annual questionnaire to help identify any reportable items and ensure compliance.
If you’d like to explore how these rules apply to your business, we’d be happy to help. Book a free online meeting and let’s talk it through.
