Blogger
Share this content
0
30
4424

Director forgot to take salary for 2013/2014

Hi

I have a company who has a May 2014 year end. It is the first accounting period for the company and they have just come to me this week(after the company's year end).

The director would like to show a salary for 2013/2014. Currently Software shows losses of £20,000 in accounts, so dividends cannot be paid. Co has  3 3employess on payroll. Client has put money in company himself, so company owes him around £15,000.

Have discovered that P35 for 2013/2014 has not been submitted yet!!! Now based on this info, I was wondering what his options are if he wanted the accounts to show a salary. Can the accounts for the first year of the company show directors fees accrued of approx. £9,000 (so no NI or tax) (so not actually paid). However with RTI,  as P35 has not been submitted for 2013/2014, the only amendment required would be to file a revised RTI for April 2014 showing a month 12 directors accrued pay of approx. £9000.  Is this amendment  going to be problematic with HMRC, be flagged up in any way? As long as salary is paid 9 months after the year end, it should be a tax allowable expense.

If it was shown as a bonus, would there be the same problem with RTI as accruing director remuneration? Or is there a simpler way of accounting for salary opportunity for previous tax year forgone?

Many thanks

Replies

Please login or register to join the discussion.

First things first
Firstly advise client that even if it were possible there would be no advantage to him in showing a salary in the accounts. If he accepts that wise advice you will be able to stop worrying about whether, and if so how, it might be possible to do so.

Thanks (1)
avatar
By Arabita
21st Jul 2014 08:02

He doesn't have any income for 2013/3014, so would waste his personal allowancs for that year.

Thanks (0)

Paying a bonus would not save his allowances

as it would be taxable 14/15 when paid anyway. You cannot rewrite the past to the extent that you/he wants. It is a lesson for him to take proper advice early

Thanks (1)
21st Jul 2014 10:58

Do you fully understand PAYE & RTI?

Arabita wrote:

Have discovered that P35 for 2013/2014 has not been submitted yet!!!

Can the accounts for the first year of the company show directors fees accrued of approx. £9,000 (so no NI or tax) (so not actually paid).  However with RTI,  as P35 has not been submitted for 2013/2014, the only amendment required would be to file a revised RTI for April 2014 showing a month 12 directors accrued pay of approx. £9000.

There is no such thing as a P35 under RTI.  The nearest you get is an End of Year declaration on the final FPS or a separate EPS.  Are you saying that the EOY return has not been submitted?

Did the client file FPS reports for the payments to the 3 employees, using either HMRC Basic PAYE Tools or payroll software?  It is too late now to submit any RTI reports for 2013/14 other than an Earlier Year Update, which he could do with BPT if any software that he uses does not have the facility.

For 2013/14, a salary of anything over £7,696 would incur NI contributions.  If you were to re-write history and process fees of £9,000, the client would be charged interest, if not a penalty, for the late payment of the PAYE.

Thanks (1)
avatar
By Arabita
21st Jul 2014 11:29

I meant End of year decleration. Of course am aware of Ni and tax implications hence I used the word "approx" £9000.

Thanks (0)

Forgetfulness can be expensive.

Earn your money by helping your client plan for the future, not by rewriting history. The company didn't make a payment, nor did it advise HMRC through RTI that there was a salary (which could have been credited to his director's account). So unless there is documentary evidence to the contrary, it didn't happen, did it?

 

Thanks (0)

Exactly!

I was thinking the same thing! Rewriting history almost always come back to bite you. In fact, at Broniec Associates, that's exactly what we get paid for!

Thanks (0)

Ugh!

Broniec Associates wrote:

I was thinking the same thing! Rewriting history almost always come back to bite you. In fact, at Broniec Associates, that's exactly what we get paid for!


Are you aware that shameless plugs are against house rules?
Thanks (1)
By mrme89
26th Jul 2014 11:41

.

andy.partridge wrote:

Broniec Associates wrote:

I was thinking the same thing! Rewriting history almost always come back to bite you. In fact, at Broniec Associates, that's exactly what we get paid for!


Are you aware that shameless plugs are against house rules?

 

No advantage of the plug considering they are US based.

 

 

Thanks (1)
26th Jul 2014 10:43

1984 or 2014 World Cup

Broniec Associates wrote:

I was thinking the same thing! Rewriting history almost always come back to bite you. In fact, at Broniec Associates, that's exactly what we get paid for!

Is it Winston Smith ? Or Luis Suarez ?

Thanks (0)
avatar
By Arabita
21st Jul 2014 12:32

Yes Andy, that is my concern, even if rti side is sorted no payment has been made that could even construe as a salary for the whole year.

Could accrue directors remuneration which would help company but doesnt help client utilise his personal allowances for 2013/2014

Thanks (0)

You have answered your own question now.

Thanks (0)
23rd Jul 2014 13:06

Forgot?

You say director forgot to take salary. Was a 2013/14 salary/fees for the director mentioned in any documentation e.g. minutes of company meeting. If it was and he merely forgot to pay himself then you could make the payment through his directors loan account.

Thanks (0)

Surely

tsp.Shaun wrote:

You say director forgot to take salary. Was a 2013/14 salary/fees for the director mentioned in any documentation e.g. minutes of company meeting. If it was and he merely forgot to pay himself then you could make the payment through his directors loan account.

it still wouldn't be taxable in 2013-14 would it, as not paid until 2014-15?
Thanks (1)
By JimH
23rd Jul 2014 19:40

Refer to an earlier thread
As set out by previous respondents, you cannot rewrite history. But you also need to be aware of the director deemed 'paid' rules, which can mean payment was in 2013/14 dependent on decisions made before 5 April 2014 (and not after May year end!)

This thread contains useful references and shows CT treatment mirroring personal tax treatment.

http://www.accountingweb.co.uk/anyanswers/question/accrued-directors-bon...

Thanks (0)
26th Jul 2014 10:36

To be fair ....

.... if he's wealthy enough not to notice he's not taken a salary, he's wealthy enough to miss out on his personal allowance.

Thanks (1)
avatar
26th Jul 2014 11:01

Pointless

It seems a pointless exercise to attempt to retrospectively pay a Salary only to serve to increase the Company's losses for offset against future profits (of same trade). Is the business actually a going concern? 

Assuming there are no other employees I would attempt to have the 2013/14 PAYE Scheme closed and any penalties struck out and re-register later in 2014/15.

Also, make sure you get paid first. 

Thanks (0)

Disadvantage

Site clutter

Thanks (1)
avatar
By Arabita
26th Jul 2014 14:46

No RTI submissions since incorporation

Thanks all the comments.

It now appears the client wasn’t sending the monthly rti submissions to HMRC since it started the payroll process in April 2013… so cue a letter from HMRC. Therefore going to leave the issue of directors salary as It appears HMRC may start asking protracted questions.

Referring to the link by Jim, if for example, it appears that director did a meeting with himself, got the minutes to prove that he has authorised himself the minimum salary before NI & Tax of approx £7000 in 2013/2014, but rather than it being actually paid, requested it to be credited to directors account, it would be taxable when the salary was authorised i.e. 2013/2014 (according to legislation in Jims link) The fact that the client should have included it in the payroll when salary was authorised, is irrelevant now as client hasn’t been processing the rti side of the payroll for all the employees since April 2013 (incorrect login details for government gateway).

So my thought is, as all the payroll since incorporation hasn’t been submitted to HMRC, he is in a position where he could claim a credit to the directors loan account and consider the payment credited to be net and being taxed in 2013/2014 (no difference between gross and net as no tax& NI due). In his defence the fact the client was not successful with dealing with rti submissions since April 2013 would help his case in considering the salary taxed in 2013/2014.

Not that I am going to do that…. But worth a thought?

Thanks (0)
avatar
26th Jul 2014 15:32

@ Arabita [OP]

Your last post says :-

"Referring to the link by Jim, if for example [my emphasis] it appears that director did a meeting with himself, got the minutes to prove that he has authorised himself the minimum salary before NI & Tax of approx £7000 in 2013/2014, but rather than it being actually paid, requested it to be credited to directors account, it would be taxable when the salary was authorised i.e. 2013/2014 (according to legislation in Jims link".

As regards, my emboldening, it is not clear whether you are stating fact or hypothesising.  Can you please clarify which it is [ you must know whether this was what happened or not].  

Basil.

 

Thanks (0)

Invention

There is something you seem to be making up, but your post is so confusing I can't tell quite what it is.

Thanks (1)
avatar
By Arabita
26th Jul 2014 16:20

Sorry I am hypothesing

Thanks (0)
avatar
By Arabita
26th Jul 2014 16:22

Sorry I am hypothesing, the if for example paragraph. But he has definitely not made any monthly rti submissions

Thanks (0)
avatar
26th Jul 2014 16:39

@ Arabita

So when you say :-

"So my thought is, as all the payroll since incorporation hasn’t been submitted to HMRC, he is in a position where he could claim a credit to the directors loan account and consider the payment credited to be net and being taxed in 2013/2014 (no difference between gross and net as no tax& NI due). In his defence the fact the client was not successful with dealing with rti submissions since April 2013 would help his case in considering the salary taxed in 2013/2014 [my emphasis]",

and since you admit that this did not take place, you are effectively condoning his pretending that he held the meeting, his preparing fictitious minutes agreeing a salary etc.

To support this deception, you put forward the fact that he  "has definitely not made any monthly rti submissions", thus seemingly compounding the felony.

That is how it appears : have I missed something before I make further comment ?

Basil.

 

.

Thanks (1)
avatar
By Arabita
26th Jul 2014 16:54

Im hypothesing that IF he stated that to me that he had prepared minutes etc, he may be able to effectively get away with having a taxable salary for 2013/2014 due to failure to submit monthly rti submissions.

In practice, I'm not going to be putting a salary through for that tax year.... I would quite like to retain my practising certificate than throw it away on such a issue!

Thanks (0)
avatar
26th Jul 2014 17:06

@ Arabita

 Perhaps, with respect of course, it was the somewhat maladroit use of the words "In his defence" which threw me ; as there is in reality no "defence" at all [unless one equates such "defence" with that of the Brazilian football team when faced with a few Germans].

Basil.

 

   

Thanks (0)
avatar
By Fitzz
29th Jul 2014 16:11

The short answer

Arrabita, if I were you I would call it a day on this thread before you get buried in pious advice!

I think what is being said is that yes, if that were the case then it would seem to allow the directors salary to be reflected in the older year, thus using some of his Personal Allowance.  However they are at pains to distance themselves from any opinion which could possibly be viewed as being anything other than totally righteous.

Amen

Thanks (0)
29th Jul 2014 16:39

With good reason

Fitzz wrote:
However they are at pains to distance themselves from any opinion which could possibly be viewed as being anything other than totally righteous,
Giving advice to act dishonestly is no good for anyone. An accountant caught aiding in dishonesty is going to end up with about as much trouble as the person they aided. Setting the client up for a nasty HMRC enquiry would hardly be acting in their best interests either. Do you think having found one undeniably dishonest thing HMRC aren't going to sniff around for more?

You call it righteous. I call it avoiding unnecessary grief.

Thanks (1)

The worst accountants

Are not the ones who don't know the rules. They are the ones who do know the rules but don't apply them. They sacrifice their integrity in an attempt to strengthen the client relationship.

Nudge nudge, wink wink, let's keep this between ourselves.  And if HMRC ever ask, just say  . . .

Thanks (0)
avatar
By Arabita
29th Jul 2014 17:24

Thanks all for the comments, always love a polar discussion!

Thanks (0)