Advanced Salary for new Employee

Advanced Salary for new Employee

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Hi,

I am in the process of setting myself up on the payroll of the company I have been running but have so far not taken any money out off.

I want to pay myself a yearly salary of around 50k however at the moment I need an advance of 12k in order to pay some bills that are coming up. What is the best way to approach this, from a tax perspective for the company and to ensure the correct tax procedures are followed.

I was thinking of prepaying myself 4 months salary and then deducting this amount every month. However my accountants have informed me I cannot do this as this would put us in a negative amount. I do not understand this fully if you have any clarification please let me know.

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Euan's picture
By Euan MacLennan
29th Jun 2016 12:03

I do not understand your last paragraph. It sounds unnecessarily complicated.

If you need to draw a salary of £12,000 now (or whatever it grosses up to if you need £12,000 net), just put it through the payroll now in June. As you would be taking about 3/12ths of £50,000 in the third month of the tax year, the PAYE tax deduction would be in line with paying yourself £50,000 evenly over the tax year. As a director, you and the company will pay NIC on the excess over the annual thresholds of about £8,000.

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By Tim Vane
29th Jun 2016 12:21

It sounds like you need new accountants as it appears that they don't know what they are talking about, or you have misunderstood what they have told you.

You can pay yourself any salary you like, it doesn't matter whether it results in a "negative amount" (a competent accountant would not have described it that way, so it sounds like you have got yourself a really poor adviser).

Although circumstances can dictate the treatment, a decent accountant would probably have been telling you to take a modest salary from the time you started the company, and may well have told you to pay further profits out as dividends, depending on how long your company has been running. Obviously there may be specific reasons why this would not be the best option for you, but surely your accountant will have discussed this with you. You could be paying thousands more in tax and NI than is necessary with the approach you have outlined.

So, priority one is to speak to your accountant and ask for their reasons for telling you not to pay a salary. Depending on their answer, your next priority may be to find a more competent accountant and that will mean you won't have to post messages on here asking for clarification of points your adviser should have adequately covered.

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By Alastair Johnston
29th Jun 2016 13:05

You don't understand your accountant's advice. Why don't you go back to him and get him to explain it in a way you do understand? That is part of what you are paying him for.

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By jimcal
29th Jun 2016 13:19

Is this your own company? If so like most shareholder/directors you likely have a loan account which hopefully is in credit.

This represents the funds and assets you put into the company to get it up and running. You are perfectly free to draw upon this at anytime (assuming the company has liquid finds of course). This withdrawal is tax free.

As a shareholder you are also entitled to dividends, assuming there are sufficient profits etc.

Finally, as a director you are also entitled to draw a salary, if you do so you will probably have a payroll set up and make the payments using Real Time Information where you have to submit details of your salary to HMRC on or BEFORE the date the payment is made.

Your accountants have answered your question on the basis you simply want salary. But in theory there is nothing wrong with drawing against your loan account and then crediting the 12K salary over the next few months under RTI - at that point rather than paying yourself you credit the net salary after tax and NIC to your loan account.

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