Pay Salary in advance

[northernladuk]

You're thinking like an employee, not like a company.

Interesting link, will have a read.

Not liking messing about with PAYE to suit my needs does not make me think like an employee. I am responsible for my company's finances and if I wish to play it down the line then I will. That is a company decision not an empoyee one.

[Platypus]

I am responsible for my company's finances and if I wish to play it down the line then I will.

Quite right. Same for me.

What I meant was that some people (and I'm not saying you) just can't think outside the mindset that a salary is an amount of money divided by 12 and paid monthly, and more to the point, that anything different is just wrong or some kind of fiddle.

You might also enjoy this link by way of extra reading.
If a director pays himself £7,068 on 06/04/11, and then nothing for the rest of the year, does he have to pay tax/NIC in May? | AccountingWEB

[northernladuk]

Quite right. Same for me.

What I meant was that some people (and I'm not saying you) just can't think outside the mindset that a salary is an amount of money divided by 12 and paid monthly, and more to the point, that anything different is just wrong or some kind of fiddle.

To be fair it could include me. I just haven't bothered to look in to this area to think any differently as I was happy with the 12 monther knowing I can pay more one if I miss the month before (from experience) as long as paperwork fits. All interesting stuff but still won't be messing about with mine

[psychocandy]

Er, it's up to the company to decide what's earned and when. Lots of people earn £5k per month.

PAYE is all very well but loopholes were closed many years ago with the Directors' NI rules to stop directors reducing their NI by paying themselves a year's salary all in one go. The rules don't stop these large payments, but they ensure that the 'fair' amount of NI is paid.

Ah. Not up with the exact NI rules but are you saying if you paid £8K in one month, you'd go over the monthly limit for NI but 8k over 12 months you wouldnt?

[psychocandy]

Agreed but you say PER month. Not in one month and nothing for rest.

Saying that it would be nice if Clare could just qualify what 'Salary in advance is a loan - paying a big salary in one month is fine. It depends what way you look at it! '

Does that mean if his PAYE reflects 7K in one month and £1 the other 11 month it is acceptable?

Is there any real tax advantage to what the OP is doing it or will it balance out in the next year?

My thoughts exactly. Cant work it out.

My end of year is end May so is it worth me paying it all before then thus lowering my CT for this company year (end May 2012) but still being in personal year 2012/13...

Interesting...

Or like I said would a large sum in one month attract NI because its over the monthly limit whereas 12x payments would not go over? NI payable is based on weekly/monthly thresholds isnt it rather than yearly totals?

[Platypus]

Ah. Not up with the exact NI rules but are you saying if you paid £8K in one month, you'd go over the monthly limit for NI but 8k over 12 months you wouldnt?

Directors' NI is calculated over the year, not month by month. So it would even out after 12 months.

But yes, I think you'd pay lots of NI in month 1, then gradually get it back over the next 11 months. I think. I'm no expert, but the link I provided one or two posts ago talks about implications for NI.

My contribution to the thread is over. I KNEW that yearly salary was allowed. That's it!

[northernladuk]

.

My contribution to the thread is over. I KNEW that yearly salary was allowed. That's it!

Are you sure? How do you know and could you provide some evidence? I don't understand.

[Sockpuppet]

My thoughts exactly. Cant work it out.

My end of year is end May so is it worth me paying it all before then thus lowering my CT for this company year (end May 2012) but still being in personal year 2012/13...

Interesting...

Or like I said would a large sum in one month attract NI because its over the monthly limit whereas 12x payments would not go over? NI payable is based on weekly/monthly thresholds isnt it rather than yearly totals?

No. None. NI is worked out weekly for non directors. Yearly for directors. What used to happen is directors would pay all the salary in week one to avoid NI.

That was up to £X amount was say 11% NI over £X amount was 0.5% (or something similar) so as long as you went over £X amount was worth paying all your salary in one go otherwise you'd have 12 x £X amounts x 11% instead of 1 amount at 11% and 1 at 0.5%.

[psychocandy]

Many thanks Platypus.

OK, so overall you wouldn't end up paying NI then based on the 'optimum' salary (cant remember what it is for this year now) but you'd have to pay a lump up front and then claim it back every month.

Must admit I cant work out if there would be an advantage to me paying £7500 or so in April to get it in before year end in May or not?

I guess so because otherwise (based on £7500 a year) :-

Year end May 2012 - salary (just two months april 2012, may 2012) = £1250 = £250 less CT than if zero salary
Year end May 2013 - salary (12 months worth) = £7500 = £1500 less CT
Year end May 2014 - salary (12 months worth) = £7500 = £1500 less CT

If I did the lump sum in April every year (same personal income for my tax year):-
Year end May 2012 - salary = £7500 = £1500 less CT
Year end May 2013 - salary = £7500 = £1500 less CT
Year end May 2014 - salary = £7500 = £1500 less CT

Saving myself £1250 of CT for year ending May 2012? Or am I missing something obvious here?

Surely its best to get as much salary taken out of the company as early as possible since its an expense? Or am I wrong and that it will all even out in the end?

Think I'll ask my accountant. Not sure if he'll like the idea of paying it up front like this mind.

[Notascooby]

Wow - went on to accounting web for a nosey - there's some very bad advice on there, like selling shares to family members for income splitting...seems not all accountants know about 1 man bands.