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Paying advance 'deemed payments' or Bonus
I know you havent implemented any IR35 processing yet, but is there a category/explanation to account for a 'deemed payment' advance. In other words I dont want to pay one of my staff a dividend, but instead pay them a portion of the end of year 'deemed payment'. It needs to therefore be treated as a business expense I think.
Alternatively, perhaps I can call it a bonus? Can you tell me what the 'Bonus' explanation does? It doesnt seem to be treating the payment to the user as salary i.e. no PAYE or NI is calculated on it.
Alternatively, perhaps I can call it a bonus? Can you tell me what the 'Bonus' explanation does? It doesnt seem to be treating the payment to the user as salary i.e. no PAYE or NI is calculated on it.
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Inappropriate?Simon,
In fact we used to have an 'IR35 Deemed Payment' category but we removed it ;-<!
We'll dive back into the HMRC guidance on this and come up with the best way of handling it properly. And take a look at our 'Bonus' handling, too.
We'll keep you posted here, of course...
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This answers the question
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Is there any news on this please. As the 'bonus' isnt reflected as a
business expense it doesnt appear in the P&L and so is skewing the
accounts. There doesnt appear to be any other explanation I could use -
Inappropriate?Just as a further point, now that these payments have cleared, the Bonus explanation doesnt seem to be taken into account on the Yearly P&L account which could be a bit of an issue. -
Inappropriate?Simon,
We're working hard to get a fix for this into tonight's update 'Copertino'... -
Inappropriate?Simon,
OK, in last night's update we merged 'Salary' and 'Bonus' payments together. It doesn't really address your issue at the moment but it least these payments are now reflected correctly in the individual salary accounts.
(As an aside, we're going to incorporate Bonus elements into payslips as we develop the payroll side of things further - but there's not much incentive to do this soon since most Directors have a fixed, small salary and could just vote themselves another dividend...)
The advice we have is that you should for the time being allocate those interim Deemed Payments as Dividends. Once we have a method of calculating the IR35 Deemed Payment, the HMRC will happy for you to reclassify those dividends.
Alternatively, you could just declare them as Salary and Bonuses, since a possible final salary payment (of the amount of the Deemed Payment) on 5 Apr will then clear the account (see the HMRC guidance on both of those here .
(and once we have an IR35 calculation there may well be some 'smartness' in DeemedPayment/Dividend/Salary handling)
So, sorry we haven't got an immediate solution here but we now have a much better handle on this complex area of tax, which is half the battle.
As a matter of interest - do your IR35 projects normally involve a single employee or is the income needing to be split across several?
I’m all IR-35'd up
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Inappropriate?Thanks for doing this. However, the new Salary and Bonus explanation isn't included in the profit and loss account which was part of my problem. As the (rather large) bonus isnt included as a business expense (which I think it should be) then FreeAgent thinks i've got far more distributable profits than I know I actually have.
Just to respond to your question, there are two of us. One is working on a non IR35 project and the other is IR35. All the 'deemed payment' from the IR35able project will go just to the one employee.
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Inappropriate?Simon,
Sorry, not totally clear with my answer, was I?
As before, the P&L part of the Salary and Bonus arises from the payslip - the transfer of money from the bank account has an effect on the director's/employee's 'Salary Account'.
The reason is that changes to salary, or awarding of bonuses has an immediate effect on the tax (PAYE & NI) liability of that user.
We do have an alternative mechanism for those users not using the FreeAgent payroll - a direct expense for Salary and Payroll taxes - but it's an approach that will require correction by an accountant at the ends of the year. But if you already have payroll info in FreeAgent that's not available to you (we don't want people confused and mixing the two methods.)
I accept that it's a 'worst of both worlds' deal with FreeAgent payroll at the moment - not capable of handling some non-standard situations but really not optional if you pay your directors and employees a salary.
Here's what we're going to do about it:
* Introduce a way of changing salary levels or adding bonuses to a payslip and then recalculating the remaining payslips' tax liabilities for the year.
* Add a way of including 'Other Deductions' on the payslips to cater for Student Loans, Maternity pay etc even thought we don't fully support their calculation
* Add support for importing payroll data from one or more online payroll providers
* Possibly integrate fully with a single online payroll service so you can calculate payslips comprehensively from FreeAgent but also submit online PAYE returns yourself.
The only workrounds for your current situation I'm afraid is to either
* Categorise the Bonus for the time being as a Sundry expense, and ignore the additional PAYE/NI liability raised, or
* Use an online payroll system to calculate your payslips with the Bonus included for the relevant month, and then enter the combined Salary/Bonus amount and calculated tax values into FreeAgent.
Our weakness on payroll matters is very much on my mind, and I'm as keen as you are to move closer to a more complete solution for you.
EMPLOYEE
