One of the company directors is working on the basis that he will be paid once there is an influx of moneys. How to I account for this each month? I want to show this within the accounts
thank you
Replies (7)
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Process the wages journal as normal:
DR P&L Gross Wages
DR ERS NIC (if appropriate)
CR Wages Control.
CR PAYE Control
As / When you decide to pay him
DR Wages Control
CR Bank
But do remember that by processing the wages via payroll any PAYE/NI due will become payable to HMRC at this point, despite the fact that the director has not been paid the net pay, so there is a negative cashflow impact now.
The other option is to make a general accrual.
Dr wages
Dr NIER
Cr Accruals
Though this will possibly in future (subject to the actual payroll being processed) have ramifications re deductibility for corporation tax and the tax year the wages will eventually be paid within.
Given we are now in April, so have 11 months until tax year end, subject to company year end and if cash is tight (as implied) I might consider the accrual approach.
If this approach is taken the director ought to be made aware of his/her entitlements in the event of a corporate insolvency, the risk being nothing processed might mean nothing due from the company.
We are presuming the director is the controlling shareholder.
If he is an 'employed' director, I imagine the payslips would be the preferred route.
Mind you, not sure I would agree to fund the company this way if I didn't have a stake.
If his salary is £680 a month no paye so you draw the pay later when funds allow. Even if income is low the CT loss can be carried forward to future years.
Watch out for other income that makes this taxable though....
If the OP had needed advice on this, we'd have had much more information disclosed to us.
I'd post his net pay to his director's loan.
Just saying, like. Nothing wrong with the other suggestions.