Form SA700 - Is the salary payable to the Foreign director tax deductible?

Form SA700 - Is the salary payable to the...

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Hi

I am doing the rental accounts and SA700 for a BVI registered company. The company owns residential apartments in the UK. The two Shareholders are Malaysian residents.

The shareholders want to accrue a salary of £5K each in the rental accounts as 'reasonable' remuneration for 'running' the  UK property business.

In reality the properties are managed by the local estate agent and the shareholders visit the UK twice a year mainly for holiday, but whilst they are here they would also tend to any issues with their rented properties, very minimal I would say.

I am not comfortable with this salary accrual but cannot quote HMRC chapter and verse to them. I should be grateful for any advice on this.

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By George Attazder
10th Oct 2011 16:42

Payment within 9 months

As it is the UK property business of a non-resident company, it's liable to income tax and ITTOIA applies.  The expense must be wholly and exclusively for the purposes of the business (your area of doubt) and any salaries accrued must be paid within 9 months of the year-end.

If there are genuine duties being carried on, £5,000 a piece really isn't excessive.  A challenge will only come if they get greedy.

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Replying to George Gretton:
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By aadil
21st Oct 2011 15:52

Just to clarify once again

Thanks

Can I just clarify ... As the shareholders are resident in Malaysia, would the salary paid to them by their BVI company for the 'management' of their rental portfolio in London, come under UK taxes? Let's say that they accrue £7000 each in the rental accounts for the year ended 5/4/11, what UK tax consequences would there be if any for the shareholders? As £7K is more than £6475, would the excess be taxable? Or not taxable because they are not UK residents?

 

Thanks

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