Does the salary have to be physically paid?

Client wants to claim backdated salary, not previously paid/realised in last financial year

Didn't find your answer?

My client is a start-up and has only been going for a year or so.

The founder is an employee of the company and his salary is stated within his contract (effective from the start of the business).

He did not take the salary in the first year but now the business has funding etc. and wants to claim all the backdated pay he accrued.

We are in a new financial tax year and he still hasn't physically been paid for last year.

He wants to pay what he is owed now in 22/23.

Record all his pay/taxes through his 21/22 self-assessment so he can utilise his last year's tax-free allowances.

To me, this doesn't sound right. I think everything should do through 22/23. 

Any help would be greatly appreciated.

Replies (10)

Please login or register to join the discussion.

avatar
By Jane Wanless
11th May 2022 10:22

Under RTI, he needs to report his payment on or before the date of payment. To report before payment in 2021/22, he'll now need a time machine. If he doesn't have one, he'll need to report in 22/23 and accept that he should have planned before now.

Thanks (3)
Replying to janewanless:
avatar
By GH-Accountant
11th May 2022 10:35

Thanks, Jane!
My thoughts exactly.
Curious, if his contract was as a freelancer (outside IR35) would still be able to claim through his SA? Despite not yet being paid.

Thanks (0)
Replying to GH-Accountant:
avatar
By David Ex
11th May 2022 10:56

GH-Accountant wrote:

Curious, if his contract was as a freelancer (outside IR35) would still be able to claim through his SA? Despite not yet being paid.

You mean self-employed? That’s an entirely different matter to being an employee. Why did your client decide to operate via a limited company?

Thanks (0)
avatar
By David Ex
11th May 2022 10:39

That’s the type of disadvantage that comes from clients not taking timely advice.

Thanks (1)
paddle steamer
By DJKL
11th May 2022 10:44

Is his salary above the level that would need reported under RTI?
Are there other employees whose salaries were returned under RTI during the period?
Are you convinced this employment contract was executed when the company started its activities and is not a recent manifestation backdated re its execution?

Thanks (0)
avatar
By Michael Davies
11th May 2022 10:48

Ages since I looked at this,however isn’t it the date the salary is available ,if earlier rather than payment date when PAYE is operable .Therefore the moment the salary hits his loan account,PAYE is due ? As I said ages since I looked at this.Garforth v Newsmith Stainless Steel may well have been superseded.

Thanks (0)
avatar
By SXGuy
11th May 2022 12:00

It's a pitty client didn't file rtis and allocate the salary to his dla.

Better call Dr Who. But only the good encarnations.

Thanks (1)
Replying to SXGuy:
avatar
By Dib
11th May 2022 13:23

DeLorean with flux capacitor may also be available ;-)

Thanks (1)
avatar
By fawltybasil2575
11th May 2022 14:22

@ GH-Accountant (OP).

The key lies in the need to understand how the legislation defines the concept of “payment” (which is NOT how one normally regards “payment”).

Here is the HMRC guidance on the subject:-

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim42200

Here (more importantly) is the legislation:-

https://www.legislation.gov.uk/ukpga/2003/1/section/18/enacted

https://www.legislation.gov.uk/ukpga/2003/1/section/686?view=plain

Please see especially S.18(1) to S.18(3) and then S.686(1) to S.686(3).

It appears clear from your initial question that your client is a Director; from which you will hopefully note the distinction between Directors and “Non-Directors” (in terms of sometimes determining the date on which the earnings are deemed to have been received). Rule 3(b) of S.18 (1) will probably apply (see my next paragraph).

Most important is the wording of the (presumably a valid) employment contract, under which [if the terms therein expressly or impliedly indicate that the salaries are required to be paid on (probably – please enlighten me) a monthly basis] would require that salaries be treated as paid on that same monthly basis. In your case, therefore, the emoluments for the months April 2021 to March 2022 should be treated for all purposes (including RTi submissions) as relating to the 2021/22 tax year (with the appropriate RTi remedial action).

[If perchance the employment contract emoluments start in March 2021 or earlier (your question states that the company ”has only been going for a year or so”) then remedial RTi action will be required re 2020/21 also].

Basil.

Thanks (0)
avatar
By kiwilondon99
12th May 2022 11:14

hope the new 'investor' is on board with a big chunk of the new funding/investment £ going straight out as pay !! especially if not previously disclosed in any DD !!!

Thanks (0)