Is a salary valid for tax and NI purposes if it is settled only by crediting the DLA, and no money is actually paid?
Tom Trainer
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Yes, it is valid, but you might like to consider it the other way round. When the entry is made in the books, it is deemed as paid and the PAYE and NIC deductions are due (for a director).
If the director is entitled to the amount, you don't even need to make the entries in your books for the income to be caught for PAYE - See ITEPA 2003, s.18 (1), Rule 3(b).
The PAYE treatment of a DLA is unaffected by whether the director can draw from the account freely (whether for cash flow or other reasons). Rule 3(a).
But be careful - if you're trying to get a bonus treated as a deduction after the balance sheet date (e.g. looking when the accounts are finalised and paying the bonus), you need to be careful about whether the accounting treatment will allow you to make the entry. FRS12 and the new FRS21 are quite strict about what is a liability - essentially you need an obligation (albeit a constructive one may do) at the balance sheet date.
Thanks guys. Nice to get one simple, definitive answer (from the multi-disciplinary Neil Eglintine) and one detailed one.