I set my own limited company up in November 2021 to provide audit and accountancy services and have been working on contracts with a steady day rate since then. Obviously I am an accountant so have knowledge but I have only worked in audit with large corporations so the rules surrounding small limited companies and setting things up are new to me.
I wanted to do the typical; keep my salary as low as is manageable and pay the rest as a dividend after my first year of trading.
My problem is…..I didn’t get round to setting up the payroll until June 2022 so before that I have been withdrawing what would be my net pay each month from the company and not declaring it as wages, but instead classing it as a DLA until I sorted the payroll (I had no intentions of letting that go on so long but things in life made it that way). Now my DLA has exceeded £10k and I understand that there are implications to this which I want to avoid.
I am trying to work out what the best thing to do is from here and consider the below to be my options:
- Repay the loan with my savings and hope HMRC will not find out it exceeded £10k at any point during the year. This is feasible temporarily by using my house deposit but I will likely need the funds back in the next couple of months.
- Process backdated payrolls for the months missed and pay the late submission fines. I would imagine these will be substantial given we are talking about backdating by 6-7 months.
- Process a payroll amount higher than I will actually take in cash so the difference can be netted off against the DLA. This may not get it down to £10k by the year end though as it is September 2022.
- Do nothing now, after the year end declare a dividend and net this off against the overdrawn DLA rather than taking the cash, process the >£10k DLA as a benefit in kind and make the company pay the NI liabilities.
I would really appreciate it if any of you could given advice or add to my options above. I’ve tried to read up about it but sometimes I think you just need people you can bounce ideas off of and hoping someone on here is more experienced than me in this area.
Also, this may not be the ‘right’ way to think about things but am I right in thinking that HMRC would only become aware of a DLA which was overdrawn by more than £10k but repaid at the year end, if they selected your company for an investigation/review once accounts had been filed?
I wanted to do the typical; keep my salary as low as is manageable and pay the rest as a dividend after my first year of trading.
My problem is…..I didn’t get round to setting up the payroll until June 2022 so before that I have been withdrawing what would be my net pay each month from the company and not declaring it as wages, but instead classing it as a DLA until I sorted the payroll (I had no intentions of letting that go on so long but things in life made it that way). Now my DLA has exceeded £10k and I understand that there are implications to this which I want to avoid.
I am trying to work out what the best thing to do is from here and consider the below to be my options:
- Repay the loan with my savings and hope HMRC will not find out it exceeded £10k at any point during the year. This is feasible temporarily by using my house deposit but I will likely need the funds back in the next couple of months.
- Process backdated payrolls for the months missed and pay the late submission fines. I would imagine these will be substantial given we are talking about backdating by 6-7 months.
- Process a payroll amount higher than I will actually take in cash so the difference can be netted off against the DLA. This may not get it down to £10k by the year end though as it is September 2022.
- Do nothing now, after the year end declare a dividend and net this off against the overdrawn DLA rather than taking the cash, process the >£10k DLA as a benefit in kind and make the company pay the NI liabilities.
I would really appreciate it if any of you could given advice or add to my options above. I’ve tried to read up about it but sometimes I think you just need people you can bounce ideas off of and hoping someone on here is more experienced than me in this area.
Also, this may not be the ‘right’ way to think about things but am I right in thinking that HMRC would only become aware of a DLA which was overdrawn by more than £10k but repaid at the year end, if they selected your company for an investigation/review once accounts had been filed?