Should wages paid to daughter be included in Directors Remuneration note?

Should wages paid to daughter be included in...

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One of my recent clients is a company with a sole director and shareholder who takes no salary himself but apparently does play an active role. Originally it was his son-in-law who was going to run the company but he didn't want to be either a director or a shareholder due to a long-running dispute with someone who ran another business with him. In fact, he is not even an employee and takes all his fees via an umbrella company.

I was going to disclose him as a shadow director but he and his father-in-law are dead against it. They argue that things have changed since the business was started and the son-in-law no longer plays an active part. Apparently the father-in-law makes all key decisions himself. I have asked them to put all this in writing!

I have no evidence to suggest otherwise (apart from the fact the son-in-law was at the initial meeting and it was he who first contacted me) so no reason to disbelieve them. Also, I don't think the son-in-law is disqualified or an undischarged bankrupt so no issues there.

His wife is employed by the company and the director (her father) wants to pay her a £22k bonus. This is fairly material as profit before tax was about £100k. My question is whether this should be disclosed in the Directors Remuneration note. The FRSSE (section 17) is silent on this although it does define Directors Family. I wonder whether this is just for related party transactions or includes the remuneration note too. As it is salary it does not have to be disclosed as a related party transaction, so no worries there.

His mother is also employed as a book-keeper (which she does very well) but if he is not a shadow director then I assume her salary will not require disclosure under Directors Remuneration.

Anyone got any thoughts on this?

Chris

Replies (5)

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Teignmouth
By Paul Scholes
21st Jun 2011 17:13

wheels within wheels eh?

Hi Chris - Excuse me if I got a bit confused with the family setup.

The FRSSE requires you to disclose remuneration either paid to a director directly OR paid to a 3rd party for the director's services.  The related party note excuses transactions that are to a related party but properly payable as salary/emoluments.

In this case therefore you have to firstly make a judgment over whether the SIL is a shadow director.  What confuses me is that if the SIL doesn't take an active part why is he getting fees?  If he is taking an active part and is a shadow director then the payments to his umbrella co would be director's remuneration "via a 3rd party".

With regard to the director's daughter, I think the question is whether her bonus is as a result of her work or her Father's work (or if he is a Shad Dir her husband's work).  In many cases this is extremely difficult to judge but, as with the other issues, if you take their word it should be part of a letter of rep.

Rather you than me!

 

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By cfield
21st Jun 2011 18:31

Thanks Paul

To be honest, I'm not too bothered. After all, who the hell cares? Certainly not Companies House or HMRC. The only thing that would worry me is if there was an MLR issue and I don't think there is here. This is just to keep the ACCA quiet if they should ever review the accounts.

The son-in-law does do a fair bit of work for the company supervising employees but claims not to be a shadow director. I suspect the bonus to his wife may well be for him but it's all going through the payroll and she is an existing employee. HMRC might get excited if they thought pay was being diverted from a higher rate taxpayer to a basic rate taxpayer but her salary + bonus is not wildly excessive for what she does (as far as I know) so I can't see that there is a strong enough suspicion to file a SAR. After all, it's not against the law to give someone a bonus, even if they nearly caused the collapse of the whole banking system!

I just wondered about the disclosure aspects. She is not a 3rd party receiving money for work done by her dad so no need to disclose for that reason. Directors remuneration is only disclosed as one figure, with no names mentioned, so I wouldn't have thought salary paid to other family members in their own capacity as employees should go in there. But maybe someone knows better. 

Chris

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Teignmouth
By Paul Scholes
22nd Jun 2011 08:14

Yep

Hi Chris - I think you're right and have dug deep enough.  As long as you are happy(ish) that the family members have received their pay for their own efforts there is no need for further disclosure.  The RPT note would only come into play for other transactions with family members, ie not their own salary.

If a director's fees are paid to a 3rd party they are shown as a separate aggregate total to the basic remuneration paid to the director, however if that 3rd party is related to the director then, on 2nd thoughts, I would be inclinlined, instead, to show it as direct remuneration to the director and, unless there was a commercial reason for the practice, I'd have a ML prob and I might also be inclined to mention it in the remuneration or director's transaction note.  At the end of the day, would it make a material difference to the reader of the accounts to know this fact, if so, disclose it.

I've not had this experience (or probably, more accurately, if I had I've missed it) and so I'm not going to lose any sleep.

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By cfield
22nd Jun 2011 09:18

Bonus deductible for tax?

OK, so nothing to do on the disclosure front, unless the son-in-law is a shad of course.

The only other concern is whether the £22k bonus is fully tax deductible, given that she only earns £1,000 a month and been on the payroll since Dec. The taxman might say that it was way over a commercial rate.

To kill 2 birds with 1 stone, I'll ask him to send me a list of work done by the daughter and the reasons for the bonus. That would deflect any suggestion of it being for her husband or dad too (I hope).

Thanks for your input Paul. Good to see your photo on here too. Finally we can tell for sure that you are not the ex-MU player moonlighting as an accountant :-)

Chris

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Teignmouth
By Paul Scholes
22nd Jun 2011 09:24

The wonders of Photshop

Pictures are not all they seem, the clue though is in the coaching hoodie!

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