When to pay salary?

[hugebrain]

CT goes up at financial year end (April).

It's already gone up to 20% and will rise to 21% next April, then 22% the year after.

I'm still not sure what this means. If the tax goes up in April does and my Company year ends in November, does that mean I pay two different tax rates depending on what part of the year I was paid?

[malvolio]

I'm still not sure what this means. If the tax goes up in April does and my Company year ends in November, does that mean I pay two different tax rates depending on what part of the year I was paid?

CT is taxed on the rate in force at the end of your company's year, so for Nov 2007 it will be at 20%

[poser]

Your first post says that paying regular consistent dividends may in some way result in a successful HMRC IR35 investigation, which is plain wrong.

Your second post says that some people might be successfully challenged by HMRC re IR35, although in many previous posts and in this post again you state that this is very unlikely.

Your second post in no way justifies or explains or indeed is in any way relevant to your first post.

And as an aside I think the OP's point was reasonably sensible. Should he pay a salary on one day ands get 20% CT relief or the next day and get 21% CT relief (not quite as simple as that but that's the gist of it).

My answer would be that by delaying the payment by one day, you are deferring the CT relief for a year. So do you want to receive relief of say £10K x 20% = £2K in 9 months or £10K x 21% = £2,100 in 1yr 9 months. It equates to an effective interest rate of 5% so the answer is it doesn't much matter as that's probably what you'll make at the bank.

Can someone from a reputable accountancy firm please verify this?

(no offence to Malvolio or puma )

[malvolio]

Can someone from a reputable accountancy firm please verify this?

(no offence to Malvolio or puma )

None taken.

[NotAllThere]

Perhaps Malvolio and I had the same accountant at one time.

If you read carefully, you'll see that Malvolio did not connect regular payment with IR35. His opinion and mine, is that with regular dividends, there is a risk that the taxman will say that they were not divvies, they were salary, and therefore are liable to NI payments. As I said, this opinion I've held since the 90s, before IR35 was twinkle in Gordon's eye.

Maybe the law has changed, maybe cases never got to court. Maybe the application requires some other criteria to be filled.

I've definitely heard, and agree that regular payments of dividends have zero bearing on your IR35 status. I've not seen anything that says this other attack isn't a possibility. Perhaps puma would be so kind as to provide a link?

I am unable to back up my opinion with any links, but it is not based solely on what IAS said 13 years ago. Unfortunately, I really cannot recall where else I've seen this. Perhaps an old edition of Freelance Informer? I'd certainly like to see this settled definitively. I'd be most happy to proved wrong - though I'd really like to know where my information came from!

[THEPUMA]

I'm still not sure what this means. If the tax goes up in April does and my Company year ends in November, does that mean I pay two different tax rates depending on what part of the year I was paid?

In practise you will time-apportion your profits. So as your year end is in November, for the year ended 30/11/08, 4/12 of your year's profits will be taxed at 20% and 8/12 of your year's profits will be taxed at 21%.

So effectively your £10K salary payment will get tax relief at [20% x 8/12 + 21% x 4/12] 20.3333% if it is paid on 01/12/07.

If paid in y/e 30/11/07, the tax relief will be at [19% x 8/12 + 20% x 4/12] 19.3333%.

[hugebrain]

Thanks

OK. So I'll pay the 10 grand next month and save myself £100. Cool.

[THEPUMA]

Perhaps Malvolio and I had the same accountant at one time.

If you read carefully, you'll see that Malvolio did not connect regular payment with IR35. His opinion and mine, is that with regular dividends, there is a risk that the taxman will say that they were not divvies, they were salary, and therefore are liable to NI payments. As I said, this opinion I've held since the 90s, before IR35 was twinkle in Gordon's eye.

Maybe the law has changed, maybe cases never got to court. Maybe the application requires some other criteria to be filled.

I've definitely heard, and agree that regular payments of dividends have zero bearing on your IR35 status. I've not seen anything that says this other attack isn't a possibility. Perhaps puma would be so kind as to provide a link?

I am unable to back up my opinion with any links, but it is not based solely on what IAS said 13 years ago. Unfortunately, I really cannot recall where else I've seen this. Perhaps an old edition of Freelance Informer? I'd certainly like to see this settled definitively. I'd be most happy to proved wrong - though I'd really like to know where my information came from!

It is difficult to come up with a reliable link that says that something is not correct. As a flippant example, you would be lucky to find a link that says that the current corporation tax rate is not 73.2%.

If you trawled the various contracting sites, you may find an opinion one way or another, but that would be unreliable.

One point that I guess is vaguely relevant is that some HMRC Inspectors may argue that an undocumented dividend should be treated as salary (probably incorrectly). But that argument could be raised whether payments were made monthly or annually.

If dividends are documented properly, it is not up to HMRC to magically change them from a dividend to a salary. If the directors have a meeting and decide to pay a dividend and that dividend is paid to the shareholders as per the minute of the meeting, then there is no way HMRC can turn around and say that that payment is a salary, because it simply isn't.

It's like me saying that a horse is a sheep because it has 4 legs and every sheep I've ever seen has 4 legs.

[Bluebird]

It's like me saying that a horse is a sheep because it has 4 legs and every sheep I've ever seen has 4 legs.

You didn't visit North Wales the spring after Chernobyl then....