Deferred salary

[slackbloke]

Can someone tell me if this scenario is legitimate.
Someone I know has started a headhunting company with a colleague. As in the first year they are not likely to generate any significant revenue, their accountant has advised that they should 'pay' a salary of c£40K. However, precisely because they have very little cash, he said they can actually 'pay' themselves an amount (say £10K each which is in the company) and defer the other 30K until sometime in the future (i.e. when the company has more cash). The accountant says they should do this so they effectively carry over they tax allowance to the following year e.g.

(somewhat simplified - assuming company year April to April) :
Year 1
Company Revenue : £20K
Stated salary of each employee : £40K
Money paid to each employee : £10K

Year 2
Company Revenue : £140K
Stated salary of each employee : £40K
Money paid to each employee : £70K (£40K salary for 2 tax year @20% + £30K from previous year therefore taxed @ 20%)

Does that make sense? Is that allowable?
It obviously designed specifically for first year of trading when there is little company revenue but is 'seems' a little suspicious.

[Sockpuppet]

Can someone tell me if this scenario is legitimate.
Someone I know has started a headhunting company with a colleague. As in the first year they are not likely to generate any significant revenue, their accountant has advised that they should 'pay' a salary of c£40K. However, precisely because they have very little cash, he said they can actually 'pay' themselves an amount (say £10K each which is in the company) and defer the other 30K until sometime in the future (i.e. when the company has more cash). The accountant says they should do this so they effectively carry over they tax allowance to the following year e.g.

(somewhat simplified - assuming company year April to April) :
Year 1
Company Revenue : £20K
Stated salary of each employee : £40K
Money paid to each employee : £10K

Year 2
Company Revenue : £140K
Stated salary of each employee : £40K
Money paid to each employee : £70K (£40K salary for 2 tax year @20% + £30K from previous year therefore taxed @ 20%)

Does that make sense? Is that allowable?
It obviously designed specifically for first year of trading when there is little company revenue but is 'seems' a little suspicious.

They may have to pay £40k PAYE. Though all that £20k revenue will go in PAYE tax/NI.

They can then opt to leave the chuck they would have got (i.e. after tax/ni taken) as directors loan to the company. Effectivly they get the money then give it straight back.

Next year they can take this out as its a loan so can get it back as and when the company advises.

Its a lot of tax in year 1 with very little left over for you though to do it this way. They probably won't see any cash personally out the figures you quoted.

Not really sure why you'd want to do this unless they both wanted to take over 40% barrier. There are more tax efficent ways.

[slackbloke]

They may have to pay £40k PAYE. Though all that £20k revenue will go in PAYE tax/NI.

They can then opt to leave the chuck they would have got (i.e. after tax/ni taken) as directors loan to the company. Effectivly they get the money then give it straight back.

Next year they can take this out as its a loan so can get it back as and when the company advises.

Its a lot of tax in year 1 with very little left over for you though to do it this way. They probably won't see any cash personally out the figures you quoted.

Not really sure why you'd want to do this unless they both wanted to take over 40% barrier. There are more tax efficent ways.

I am assuming it is to make sure the tax allowance is fully utilised. Not sure I understand your last point about 40% as it designed specifically to keep them below 40%. What other way could they do things that is more efficient? Presumably they cannot take a dividend in the first year as there is no money to cover it.