30 hours free childcare payments & PAYE - Help!

dilby

Hi all - Hoping someone can help as my accountant is away and I have an urgent issue to sort.
My wife is a director of my limited company along with myself - we pay ourselves each month but not through PAYE, and at the end of the year these are set aside as dividends.

We recently became parents and are filling out a form to qualify for free childcare, but the form states that my wife needs to be paid via an employer. I am super concerned that as the salary isnt via PAYE they won't accept this. If that's the case it is going to be a huge burden on us financially.

Perhaps I am an idiot for not overruling/querying the accountant but I'm really not good at these things.
Does anyone have any advice on what to do here?

Thanks!

Exodi

It is typical to pay yourself a low salary through PAYE (usually at the Lower Earnings Limit (~£6.5k per year) or up to your Personal Allowance (~£12.5k per year)) to ensure you are accumulating national insurance contributions on your record, and then the rest through dividends.

Paying yourself 100% through dividends would mean you're not accumulating national insurance credits, which causes the perhaps biggest problem of no state pension in retirement (among others, as you are finding out).

Some bedtime reading: https://www.1stformations.co.uk/blog/tax-efficient-directors-salary-and-dividends/

I guess it's not a permanent thing, you could change how you pay yourselves and then apply for the next term (though I'd recommended speaking to the accountant when they're back, as this is what you pay them for).

silvercar

I agree with exodi's comments. Normally an accountant would ensure you were receiving a small salary, sufficient for NI credits, through the company. It may be that this is the case here and the accountant is handling the PAYE record keeping for you. A simple way to check would be to look at the most recent tax return.

That said, it is not too late to change this for the current tax year. Your wife could be come a new employee of the company immediately if necessary.

sheramber

dilby said:

Hi all - Hoping someone can help as my accountant is away and I have an urgent issue to sort.
My wife is a director of my limited company along with myself - we pay ourselves each month but not through PAYE, and at the end of the year these are set aside as dividends.

We recently became parents and are filling out a form to qualify for free childcare, but the form states that my wife needs to be paid via an employer. I am super concerned that as the salary isnt via PAYE they won't accept this. If that's the case it is going to be a huge burden on us financially.

Perhaps I am an idiot for not overruling/querying the accountant but I'm really not good at these things.
Does anyone have any advice on what to do here?

Thanks!

I think you will find both you and your wife need to have the minimum PAYE earnings. 

It is a joint  application in one partner’s name. 

Isthisforreal99

If it was your accountant's advice to have your current set up (dividends only), then find a new one.