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Director's salary accrual but not paid

Director's salary accrual but not paid

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Hello,

In the last financial year my company made a small profit, however, because of cash management, the sole director chose to not receive a paid salary and rather accrue until the financial position had improved.  This value was deducted and reduced the firm's P&L and therefore reduced the corporation tax payment to HMRC.  The payment to the director was not made within 9 months of the year end due to continued cash management issues and my understanding is this now becomes disallowable.

I have two questions from this:

1) Can I correct the corporation tax or this year's return or will I need to change the prior year?

2) Can I still continue to accrue salary in this financial year to reduce CT as the intention is to still pay (granted last year is now disallowable)?

Thanks in advance.

Replies (12)

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Hallerud at Easter
By DJKL
16th Oct 2019 17:55

Is a salary a good idea to accrue?

Should you maybe be processing wages to ensure state pension qualifying year if not being done already?

Could processing basic salary re above,but leaving net pay in director's loan account, be a better idea re obtaining tax relief on salary for cash starved company?

All thoughts to consider.

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Replying to DJKL:
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By Accountant A
16th Oct 2019 18:11

DJKL wrote:

All thoughts to consider.

Along with "Was not taking professional advice a false economy?".

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Replying to Accountant A:
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By Accountant9
16th Oct 2019 21:19

Agreed, a sharp lesson learned

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By Wanderer
16th Oct 2019 18:08

Don't believe you should have submitted a return allowing it as an expense when it hadn't been paid within 9 months:-
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim47140
http://www.legislation.gov.uk/ukpga/2009/4/part/20/chapter/1/crossheadin...

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Replying to Wanderer:
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By Accountant9
16th Oct 2019 21:18

Apologies, both the annual accounts and the CT600 return were submitted before the end of the 9 months, with the intention of paying the director within that time frame.

The 9 months has now just passed and the prompt for the question was understand if I needed to amend the CT600 this year or include in the following year.

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Replying to Accountant9:
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By Wanderer
16th Oct 2019 21:30

Accountant9 wrote:

Apologies, both the annual accounts and the CT600 return were submitted before the end of the 9 months, with the intention of paying the director within that time frame.

And that was IMO incorrect. Read the legislation I have linked to, particularly Section 1289 (3)(a).
Unless there's something else I haven't read or understood you certainly do need to amend the CT600, not because of the fact that 9 months has now passed, but the fact that the original was wrong as it didn't comply with that section.
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By Adam12345
16th Oct 2019 18:29

You probably want to read s.1289 CTA 2010 - you might be pleasantly surprised.

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Replying to Adam12345:
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By Wanderer
16th Oct 2019 18:37

Can you expand on that?

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RLI
By lionofludesch
17th Oct 2019 08:50

Why make life complicated ?

Why can't the company pay the salary and, if he wants, he can lend the money back to the company ?

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By Tax Dragon
17th Oct 2019 10:06

Accruing director's salary is a terrible idea. Remember Rule 3 in s686 ITEPA 2003.

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By David Heaton
17th Oct 2019 17:34

The accrued salary is surely deemed to have been paid - for income tax purposes - when the directors signed off the accounts within the nine months? Look at ITEPA s686(1), Rule 3, for when payment to directors is deemed to take place. That being so, the incorrect treatment is not a CT failure but a PAYE failure.

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Replying to David Heaton:
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By Wanderer
17th Oct 2019 20:59

Fair point! However we didn't know the timing of the approval from the information in the original post (I accept it was subsequently given). It could have been failures of both. Also something that probably puts the OP in a worse position.

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