When to pay salary?

[hugebrain]

Hi,

My company year ends at the end of this month. Usually I pay myself and my Company Secretary around five thousand each year.

Should I pay this now, or should I wait until next month? I think the corporation tax rate goes up next year so is it better to wait so that next year's profits are reduced by an extra ten grand?

Regards,

Huge.

[scooterscot]

Hi,

My company year ends at the end of this month. Usually I pay myself and my Company Secretary around five thousand each year.

I trying to understand why you would not pay yourself a salary every month.

Should I pay this now, or should I wait until next month? I think the corporation tax rate goes up next year so is it better to wait so that next year's profits are reduced by an extra ten grand?

You're allowed a tax allowance as defined by your tax code, pay that at least.

[hugebrain]

Sorry for not being clear. I usually pay the salary in one lump for convenience and I use up my April-April personal tax allowance each year. This year, the corporation tax is going up (I don't know when), so I was wondering if I should pay the salary out of next year's profits instead of this year's (co. year ends at the end of this month).

Or doesn't it make any difference?

[r0bly0ns]

Sorry for not being clear. I usually pay the salary in one lump for convenience and I use up my April-April personal tax allowance each year. This year, the corporation tax is going up (I don't know when), so I was wondering if I should pay the salary out of next year's profits instead of this year's (co. year ends at the end of this month).

Or doesn't it make any difference?

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.

[malvolio]

Sorry for not being clear. I usually pay the salary in one lump for convenience and I use up my April-April personal tax allowance each year. This year, the corporation tax is going up (I don't know when), so I was wondering if I should pay the salary out of next year's profits instead of this year's (co. year ends at the end of this month).

Or doesn't it make any difference?

Never ceases to amaze me how people make complex decisions on financial matters to save fourpence without actually knowing the basics of how it all works...

For one thing, you don't pay salary out of profits, they're a cost of doing business and profits are what's left. Secondly, if you have an average kind of turnover you're looking to save around £35. Is it really worth the bother? And thirdly I do hope you're not taking regular, consistent dividends, or Hector may decide they are actually salary and start charging you NIs on it.

[THEPUMA]

And thirdly I do hope you're not taking regular, consistent dividends, or Hector may decide they are actually salary and start charging you NIs on it.

Where on Earth do you get that from? Utter nonsense. No legislative or case-law basis whatsoever. I doubt the PCG agrees either.

[malvolio]

Where on Earth do you get that from? Utter nonsense. No legislative or case-law basis whatsoever. I doubt the PCG agrees either.

If you get investigated and if they decide your dividends are actually a salary, it will be liable for NIs. Equally they might try and stick everything inside IR35, or disallow expenses. All extremely unlikely to happen I agree.

But that wasn't the point, actually, which is that the OP hasn't bothered to find out either way

[THEPUMA]

And thirdly I do hope you're not taking regular, consistent dividends, or Hector may decide they are actually salary and start charging you NIs on it.

If you get investigated and if they decide your dividends are actually a salary, it will be liable for NIs. Equally they might try and stick everything inside IR35, or disallow expenses. All extremely unlikely to happen I agree.

But that wasn't the point, actually, which is that the OP hasn't bothered to find out either way

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.

[NotAllThere]

Where on Earth do you get that from? Utter nonsense. No legislative or case-law basis whatsoever. I doubt the PCG agrees either.

No, this has been a possibility since way back. I was certainly warned against it by my accountant in the mid 90s.

I'm intrigued. You seem convinced there's no cases. Have you read ALL the law books?

[THEPUMA]

No, this has been a possibility since way back. I was certainly warned against it by my accountant in the mid 90s.

I'm intrigued. You seem convinced there's no cases. Have you read ALL the law books?

Your accountant was wrong.

I don't need to read all the law books. Had there been such a case, it would have been well-documented. I have spent many years studying tax and never come across one and have heard plenty of highly-respected tax commentators state that this is not the case (and none say that it is).

Do you need to read every book on your area of specialism or can you accept that the several books you have read and the unanimous opinion of various specialists you have heard speak is sufficient to enable you to cite a point confidently?

More importantly, case-law does not override legislation, it clarifies it. And the legislation is not ambiguous. There would need to be specific legislation that says "Oh by the way, you can't pay regular or consistent dividends.". There is no such legislation. In fact, many listed companies pay both regular and consistent dividends. They just pay them annually or bi-annually rather than monthly, weekly or even daily which you could if you chose to.

Another point is that HMRC will probably not even know how frequently dividends are paid by your company until they start an investigation and ask for the company bank statements.