Pay Salary in advance

[northernladuk]

Surely the OP is asking about paying all of his yearly salary in a lump sum so that it falls into the current company tax year, rather than paying it in 12 instalments where it will straddle his company tax year. I would have thought this was OK. Any reason why not?

Surely HMRC will take a pretty dim view of paying salary up front before it is earned? Doubly so if it doesn't tie up with his pay slips?

[psychocandy]

I think I see what the OP is trying to do here.

OK. Personal end of tax year is April, but say company end of year is beginning May.
£50K profit in company at moment (assuming no income in April to make things easier) which leads to CT of £10K.

So instead spend £10K of the £50K on a one-off salary so profits are now £40K and CT is only £8K now.

Would this work?

[psychocandy]

Salary in advance is a loan - paying a big salary in one month is fine. It depends what way you look at it!

Month 1 - £7000 salary
Month 2 - £1 salary
Month 3 - £1 salary

???

Taking the piss admitedly.

[northernladuk]

Month 1 - £7000 salary
Month 2 - £1 salary
Month 3 - £1 salary

???

Taking the piss admitedly.

Also doesn't really fit in with Pay As You Earn. Paid upfront isn't earned technically I would have thought but then the dark arts of accountancy can do some clever magic with numbers that bear no relation to the reality.

[adubya]

Also doesn't really fit in with Pay As You Earn. Paid upfront isn't earned technically I would have thought but then the dark arts of accountancy can do some clever magic with numbers that bear no relation to the reality.

Lots of companies pay their employees in advance, mine does.

[Platypus]

Also doesn't really fit in with Pay As You Earn. Paid upfront isn't earned technically I would have thought but then the dark arts of accountancy can do some clever magic with numbers that bear no relation to the reality.

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.

[northernladuk]

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.

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?

[Platypus]

Chapter 1 of this publication, table one, has an entry for a yearly pay interval.

CWG2(2012) Employer Further Guide to PAYE and NICs
www.hmrc.gov.uk/guidance/cwg2.pdf

Does anyone still assert that a yearly pay interval is a loan or "taking the piss" ?

[Platypus]

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

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

[Sockpuppet]

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?

What Clare is saying (correct me if I am wrong) would be to do...


06 Apr - Pay £12,000 as "Salary"

06 Apr - Issue Payslip for £1000
06 May - Issue Payslip for £1000

Which is what would lead to the loan being created as there is a balance outstanding.

There is nothing wrong with paying yourself £12,000 on the 06 April then nothing for the rest of the year. There are many, many reasons why I wouldn't do this. Mainly because you'll get a massive NI bill and if a student loan payer also get a massive student loan deduction that it'll take you 12 months to get those back when the PAYE tables sort themselves out over time.

BUt to confirm. Legally nothing against you doing this as long as this is what your pay slips say. If they say something else then there is a problem.