Three FAQ's on Payroll and Tax

How do I offset trading losses against PAYE?

You can offset any trading losses you have made from self-employment against deductions you’ve already made via PAYE by registering with HMRC for tax self-assessment.

On your annual tax return, if you declare a loss on your self-employment activities you will be able to claim a tax refund from the amount you’ve paid over the year on your salary via PAYE. In order to claim a refund, you will need to have spent at least ten hours per week on self-employment, and you must be genuinely intending to trade for profit.

For future PAYE deductions, you can request HMRC to alter your tax code to change the amount of tax deducted at source.

When my employees get sales commission in the middle of the month, can I hold off the payment until regular payroll?

Yes, but their terms of employment should make this clear.

When a new employee starts, they will enter into a contract of employment with you. Within the first two months of this contract, you’re legally required to issue them with a written statement of employment particulars. Along with things like their job title, hours of work and location, this statement must include details of when and how much they will be paid.

If an employee qualifies for sales commission, the statement of employment particulars should include reference to this, and state when that commission will be paid. It’s not unusual for commission to be included as part of the regularly scheduled monthly payroll.

Should the tax on repair parts be paid once by me and again by my customers?

No. If you’re registered for VAT (sales tax), you must include VAT in the prices you charge to customers, but you can claim back the VAT you pay for any legitimate business expenses, including the purchase of repair parts.

Alternatively, if you aren’t registered for VAT, you can’t claim back the VAT you paid on the parts but you should charge your customers any VAT.

In either scenario, the VAT is paid only once. If your annual turnover is more than £81,000 you must register for VAT, otherwise it’s optional. Once you register, you can submit a backdated VAT claim for VAT goods (including repair parts) bought during the past four years, if they’re still in your possession.

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Should the tax on repair parts be paid once by me and again by my customers?

No. If you’re registered for VAT (sales tax), you must include VAT in the prices you charge to customers, but you can claim back the VAT you pay for any legitimate business expenses, including the purchase of repair parts.

Alternatively, if you aren’t registered for VAT, you can’t claim back the VAT you paid on the parts but you should charge your customers any VAT.

In either scenario, the VAT is paid only once. If your annual turnover is more than £81,000 you must register for VAT, otherwise it’s optional. Once you register, you can submit a backdated VAT claim for VAT goods (including repair parts) bought during the past four years, if they’re still in your possession.