Back dating a wife's salary

Back dating a wife's salary

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My client has asked for an idea of her self employed income for 2011/12 so her husband's accountant can account for a wife's salary to reduce his tax liability and the family's overall tax liability.

I'm unhappy about backdating payments but on more than one occasion in the past  I have been told by fellow accountants that I am being pious.

Do you think this is okay and I'm just being pedantic?

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By frustratedwithhmrc
26th Jul 2012 07:55

When you say backdating payments - what do you really mean?

If the company has been operating for a few years and has only just reached the stage that salaries or dividends can be paid then it is perfectly acceptable that people are rewarded for their previous unpaid efforts within the company.

If the salary is paid for the whole year towards the end of the tax year, in a single lump sum (either dividend or salary), this is appropriate as well.

What is not appropriate is to generate paperwork and other associated documentation for a prior tax year which represents dividend or salary payments that were made in the following tax year or years.

As part of an HMRC inquiry, bank statements are often sought and these are reconciled with other sources of information such as salary, PAYE and NIC payments to HMRC.

Any obvious discrepancy in all of this (for example payment of a notional 31st March 2012 salary which was ACTUALLY PAID on 26th July 2012), would be giving HMRC unnecessary ammunition. You might get away with it, but it is not something that I would risk.

This is not about being pedantic, it is about reflecting the reality of the situation.

Where I would be more flexible, is if the documentation surrounding a dividend or salary payment was not drawn up at the time (or more usually simply not correct), then I believe it is appropriate to generate/revise these retrospectively - provided that the documentation reflects the payments ACTUALLY MADE.

This is often a problem for previously self employed clients who restructure as limited companies as they often refer to everything as 'drawings' rather than differentiating between 'salary' and 'dividends'. I wouldn't do this every year, but for 1st / 2nd year clients it quite often happens, so I make allowances - but tempered by training.

I realise that my views may seem hypocritical and wrong, but those are my views nevertheless.

I work first and foremost for my client, not HMRC.

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By FreddieZonko
26th Jul 2012 07:20

You've confirmed my views

@ frustratedwithhmrc, thank you. The points you make are very valid.

The other accountants want to show a salary through the husband's company before 31 March 2012 but I'm not yet party to what documentation will be drawn up ie a P60 for the year ended 31 March 2012 or 2013.

If the latter I would not be happy putting it on my client's Tax Return knowing it did not reflect reality. I'll wait to see what happens.

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By andy.partridge
26th Jul 2012 10:15

What happened?

I take the view that I should report what happened and not what I, or the client, wish had happened.

But then I work first and foremost for me.

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Image is of a pin up style woman in a red dress with some of her skirt caught in the filing cabinet. She looks surprised.
By Monsoon
26th Jul 2012 11:02

2012 P35

The 2012 P35 should have been filed already - it's up to a £300 penalty now for late filing.

As other have said, there is scope for doing things as long as they are done properly, but I would say it needs to match what was filed on the P35.

You can accrue a salary in company accounts and then pay it in 2012-13 but unless they want to pay a £300 penalty, or unless the salary is under the LEL then it can't really go into 2012.

 

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By FreddieZonko
25th Aug 2012 09:54

An update

Many thanks to those who answered.

The husband's accountants have charged a salary under the LEL in his accounts for 2011/12 as Moonbean anticipated and are calculating a salary under the primary and secondary thresholds from  next month.

Whilst I am not party to the husband's records  so cannot say these reflect actual payments, on chatting to my client this is her husband's first year as a limited company and as with frustratedwithhmrc, have accepted putting it on my client's Tax Return.

I accept your view Andy that we do work primarily for ourselves and I do not want to jeopardise the integrity or reputation of my practice but do remember as a fresh faced student some 25 years ago regularly putting through a wife's salary under the personal allowance in a doctor's personal practice expense claim with no regard to any payment made - but then it was someone elses (a top ten firm) intergrity and reputation - there's nothing like being self employed for putting a new perspective on things.

Once again thank you for taking the time to help.

Best wishes

 

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