My client has asked if the payment of Directors remuneration of £589 per month can be treated as a paper exercise. It would be credited to Directors current account but not drawn until the company could afford to pay. Currently the director is putting his own funds into the company to fund it while the business gets going so it wouldn't make sense to draw the money as a salary if it could just be credited to DCA. The year end paper work would be done and the client would get a years credit for his state pension.
Have I missed something?
Any thoughts gratefully received!
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Replies (10)
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Your point?
It is what you should be suggesting to him , this is what is done all day every day in the profession and is why our clients employ us!
OK as long as salary paid within 9 months of year end
The only potential problem I forsee is if this salary remains unpaid after 9 months of the year end.
It would not then be a tax deductable expense for corporation tax in that return - if it is paid after 9 months you should still be able to claim in a later CT600.
I beg to differ ...
... a credit to the loan account is payment of the salary (HMRC even cite that as a means of repaying an overdrawn directors loan! http://www.hmrc.gov.uk/ct/managing/director-loan.htm#4 ), and as long as put on the PAYE records within nine months is tax deductible for CT, or so I thought, having a bad day so expect to be proven wrong!
Directors point of payment
Always was a contentious issue - as I remember it Directors are not like any other workers. The payment point for PAYE is the date the money is paid or when the payment is determined, whichever is the earliest. So, when a Director has a meeting with himself, and agrees to pay himself £x salary it has been paid for PAYE even if it is never taken out of the company.
Phew ...
... thanks Marion!
As I said, the moment it is credited to the current account it is available and deemed paid, if he doesn't take it to help company cash flow that is his perrogative. But, to reiterate, to qualify as a CT deduction it must go on the PAYE records before the CT due date.
Two separate points
Salary (or bonus) can be accrued at the accounting date (no question of it having been paid or credited to a DLA) and will be deductible from the profits for the accounting period provided it is paid (or credited to a DLA) within 9 months.A director's salary can be either credited to a DLA or actually paid, but whichever it is, it must be processed through PAYE at that point, i.e: entered on a P11 deduction sheet for inclusion on the form P14 at the end of the tax year.
Usually, a minimal salary will be processed through PAYE from Day 1 in order to preserve the director's entitlement to state pension and other benefits. If you don't start doing it until within 9 months of the end of the first year, you have lost him a qualifying year.
Surely ...
... directors NI is annualised under their special rules, so you just need to make sure it is on the P14 at the end of the tax year?
HMRC will not know until then anyway as there is nothing to report in year if they are on a minimal NI credit salary, other of course than a P45/P46 which you should process asap.
No, OGA, not surely ...
If we are talking about a company's first accounts for the year ended 31st March 2011, processing a minimal salary by 31st December 2011 so that it appears on the 2011/12 P35 will not secure the director a qualifying year for state benefits in 2010/11. You have to process the salary in 2010/11 and not rely on accruing within 9 months.
Directors rules
OGA is right in saying that there is an annual payment period for NIC.
Although you are concessionally allowed to operate PAYE on a weekly/monthly basis during the year you are required to rerun the calculations on an annual basis (whether table or percentage) in the last earnings period of the year to ensure that the correct amount of NIC has been deducted. To protect the benefits/pension position as Euan recommends this should be done each March, regardless of year end, in conjunction with the annual bonus/dividend checks to ensure best use of allowances/rate bands and protection of benefits.
A Directors credit to the DLA has to be rewritten for tax purposes so that any accruals are ignored. The date to be used is the date the credit is voted on by the Directors, or the point PAYE is operated, whichever is the earlier. (EM8621)
This means that the voting of remuneration/dividends, properly documented by the company, is the date of payment even if the accounts and /or PAYE are not completed until much later. This will be the paperwork HMRC will examine in order to assess whether there is a proper Corporation Tax deduction or if PAYE is operated correctly.
Marion
That's not at all what I said ...
... "directors NI is annualised under their special rules, so you just need to make sure it is on the P14 at the end of the tax year?"
If you had a directors salary for p/e 31.03.11 you would ensure it is on 2010/11 P35/P60's, 31st March 2011 being within that tax year!
I am not sure why you mention CT payment dates in respect of a comment about "the tax year"!
So effectively you have to process by 19th May 2011!