Pay Salary in advance

[ASB]

@Platypus, most commercial payroll software will have weekly, fortnightly, 4-weekly, or monthly pay runs. Maybe there are some packages that do an annual pay run (ie a salary once per year) but I would say they are few and far between. With that in mind, most commercial software will tax an April 2012 salary payment of 7,488 as if that rate of pay will continue for the rest of the year. And if you leave April 2012 thru to Feb 2013 as 0's, and then put a March 2013 salary payment of £7,488, then it will consider all previous salary payments for the year (which will total 0), and will calculate that no tax is due on that Mar 2013 salary payment.

It really is a bit of a moot point though - if any tax is paid on an annual salary of 7,488, it will get refunded, and as Clare says, all we are really talking about is a cashflow issue.

Greg, ultimately it will all even out and won't make a jot of difference to what is eventually paid. Only when. But it does give rise to a slightly odd thought to me.

If salary was effectively paid for the year in advance (and I appreciate that is something that could be done even though HMRC might just have a paddy) shouldn't that strictly be treated as an accrual anyway and then dispersed over the period to which it applies? If this were done it would negate the cash flow issues anyway because only x% would be chargeable in year one and 100 -x% in year 2. (that's from the corporate CT perspective of course, not the individuals SA position).

[Greg@CapitalCity]

@ASB, yes I did wonder about that, but I think if £7,488 was paid out on say 30-April-2012 the actual bookkeeping would be;
30-April-2012 - Salary - 624
30-April-2012 - Loan - 6,864

31-May-2012 - Salary - 624
31-May-2012 - Loan balance reduces to 6,240
etc etc

That would get you the CT salary split you are talking about, but the loan balance will cause problems with interest being due (and depending on year end, S455 tax).

I can't see of any other way you could account for an upfront salary payment of £7,488 while also avoiding PAYE on the salary. Well, there is one way;
(1) Pay £7,487 out on 30-April-2012;
(2) Ensure your company is on the annual PAYE scheme;
(3) Pay £1 salary on 31-Mar-2013 - this will reverse back any PAYE calculated as due from the 30-April-12 payment, and because you are on the annual PAYE scheme, you won't have actually paid any PAYE across anyway. Its not very elegant though.....

[psychocandy]

It depends if they could argue any loss of tax, and if you could argue any commercial reason behind what you did!

Well there would be a loss of CT. Commercial reason - to save tax? LOL ;-)

[Clare@InTouch]

Well there would be a loss of CT. Commercial reason - to save tax? LOL ;-)

That's exactly what you're trying to prove you're NOT doing!

[psychocandy]

That's exactly what you're trying to prove you're NOT doing!

Yeh. I agree with you to some extent but then surely most of us are saving tax by doing the old low salary and dividends/ split with spouse idea.

HMRC might not like it (e.g. IR35, settlements legislation) but cant do anything about it in most cases.

And of course, remember the old saying - no one has any moral or legal obligation to pay more tax than they need to....

But, I think this one might be taking it a bit far !!!!!

[steve101]

Actually I don't have any plans to try to avoid paying tax...and I don't even do the spouse thing either...anyway the reason I was considering this is that my current contract is ending and I wanted to take the opportunity to invest some time in some internal projects...so I could switch from doing work for hire to sell products..or at least start the journey. This would of course lead some uncertainty regarding the inflow of cash.

Would anybody have any other suggestion on how to even out costs/income between two tax years?