Can a company that hasn't traded for last year pay a salary out of it's reserves and get the on-line filing incentive?
Doug Scott
Replies (3)
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If director on BR tax code
If director is on a BR tax code then the payment of £5 will trigger a tax liability of £1 and P14/P35 .... and hopefully a £250 filing incentive....
Incentive to pay
I have just spoken to the Revenue of this very issue.
I am not sure regarding payment of salary out of reserves would be allowable. If the company is not trading, then effectively there would not be justification to pay salary where there is no work being carried out- maybe someone can enlighten me on this one.
But the Revenues comments were any payment that is above the Lower Earnings Limit of £82.00 per week, will trigger a P14/P35 but until the threshold is met where NI and Tax reaches a level where their will be a liability to settle, then the effective "Nil" P35 cannot be processed on-line, but will have to be submitted manually and therefore no incentive. Sneaky one that.
But if anyone has ideas re the salary issue - i would appreciate information too.
Payment of salary
I do not see why a dormant company cannot pay a salary. Clearly there is no corporation tax relief and the recipient is liable to income tax.
If you want justification, the director will be involved in administration - preparation of accounts, CT600, annual return, etc.
I know a case where a small salary was paid to a director of a dormant company in 2004/05 and ultimately the £250 was paid even though the payment was below the threshold and therefore there was a nil P35. Whether it will work for 2005/06 remains to be seen!