Fiscal treatment of Directors compensation

Fiscal treatment of Directors compensation

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Hello all,

I am told by my accountant that my compensation as director is not to be accounted as cost for corporate tax purposes.

As this defies my "common business sense" I am asking for clarification and possibly a link to any evidence of this.

Thanks in advance

Replies (14)

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By johngroganjga
01st Jul 2014 17:37

If you are asking about your salary as a director of a UK company making taxable trading profits it would be very unusual for that salary not to be deductible for tax purposes.  Is that what you are asking about, or something different?

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Replying to Tornado:
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By Gilberto17
01st Jul 2014 17:42

Fiscal treatment of Directors compensation

Yes, exactly... is there any possible reason?

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By johngroganjga
01st Jul 2014 17:54

Not many.  But what is the

Not many.  But what is the reason given by your accountant?

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By Gilberto17
01st Jul 2014 18:01

Fiscal treatment of Directors compensation

None...

Other "weirdities":
- Office furniture installation does not account for Annual Investment Allowance... why?
- Amortization of PC in 5 years

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By johngroganjga
01st Jul 2014 19:27

Why don't you just ask him about the director's remuneration. There must be a reason? If you are not convinced his reason is a good one, by all means report back.

Does he say furniture installation costs attract no tax relief at all, or just that they attract other allowances but not AIA? Again - just ask him to explain his reasons, and report back if you are not convinced.

Not sure what your point about the depreciation of the PC is. Do you think it should be longer or shorter than 5 years?

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By Gilberto17
01st Jul 2014 19:23

Fiscal treatment of Directors compensation; Amortization rates

OK.

On Depreciation of PCs I have found reference suggesting 2 yrs is OK and a fellow Director told me he expenses them in the same year.

http://www.book-keepers.org.uk/mobile.spark?p=topic&topic=49497536:

[when setting up nominal accounts in sage 50]
"You may want to handle computer hardware separately from other office equipment (N/C 0030), as it can be written off in two years, rather than the standard 25% p.a. of other capital equipment. This will require two accounts, which might be named Computer Hardware and Computer Depreciation."

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By johngroganjga
01st Jul 2014 19:33

There is no one right answer. Five years is at the top end of the normal range. Two years is below the bottom end.

But why does it matter? You realise it makes no difference to the company's tax liability don't you? So it's probably not worth getting excited about. But at the end of the day they are your accounts, and if you want to depreciate your PC over a shorter period than 5 years just tell your accountant.

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Replying to Mike Bath:
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By Gilberto17
02nd Jul 2014 08:51

Depreciation fiscal impact

I realize I could be using "business" rather than proper "accounting" terms, so I'll try better..
Why Depreciation of PC or office furniture does not affect tax? from EBITDA to EBT (Earning Before Taxes) you deduct Interests, Amortization an Depreciation. Isn't it so?

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By DMGbus
01st Jul 2014 21:59

Compensation

The tax allowability of compensation paid to a director depends upon the reason(s) for paying the compensation.

The tax allowability of directors remuneration is normally not a problem, but there can be timing issues for the tax allowability when bonuses are concerned.   Also sometimes a retrospective claim for remuneration may be requested by a business owner but denied on the basis that not actually paid / recorded / passed through PAYE system and is effectively an attempt to "change history".

If the query is about "compensation" then why was "compensation" paid?

If the query is about "remuneration" then was the salary physically paid within the accounting year and passed through the PAYE system?

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Replying to paulwakefield1:
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By Gilberto17
09th Jul 2014 02:06

Tax allowability of Director Salary

Comment moved in post with original quote included

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Replying to paulwakefield1:
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By Gilberto17
09th Jul 2014 02:03

Tax allowability of Director Salary

DMGbus wrote:

The tax allowability of compensation paid to a director depends upon the reason(s) for paying the compensation.

The tax allowability of directors remuneration is normally not a problem, but there can be timing issues for the tax allowability when bonuses are concerned.   Also sometimes a retrospective claim for remuneration may be requested by a business owner but denied on the basis that not actually paid / recorded / passed through PAYE system and is effectively an attempt to "change history".

If the query is about "compensation" then why was "compensation" paid?

If the query is about "remuneration" then was the salary physically paid within the accounting year and passed through the PAYE system?

I was advised to take a single yearly salary payment: it was made in April 2013, with the accounting year ending in July 2013...

PAYE was setup before the payment...

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By johngroganjga
01st Jul 2014 22:14

I took it that the OP was using compensation with the American meaning, and I translated throughout into "salary" or "remuneration". The OP didn't disagree with my translations.

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By johngroganjga
02nd Jul 2014 09:20

Yes to get from EBITDA to EBIT by deducting what you say.  But those are accounting profits not taxable profits.

Accounting amortisation and depreciation are simply not deductible for tax purposes.  Adding them back to the accounting profit will be the first adjustment your accountant will make in order to calculate your taxable profit from your accounting profit.  Then he will deduct other items - principally capital allowances etc. which reduce your taxable profit but do not appear in your accounts.  That's just the way it is - and always has been.  I am sure your accountant would be happy to show you the company's corporation tax computation if you were to ask him.

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By johngroganjga
09th Jul 2014 08:05

Have you asked your accountant why they think your remuneration should be added back for tax purposes, or are you now clear on everything?

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