Reply to: salary + dividends and negative reserves

[john@UKCA]

Directors NI

If you're on a cumulative tax code and have no other PAYE income then no.

He said NI - the answer is still no if you ticked the box that says 'apply director NI'

[VelcroPower]

Interesting question regarding salary.

Say you paid your £10.6k salary in week 52 vs monthly over the year, would the £10.6k salary in week 52 attract higher taxes (I was thinking of NI payments)?

If you're on a cumulative tax code and have no other PAYE income then no.

[WordIsBond]

All you need is a QC's letter and you're on to something. I like it.

Once he sends me his money, I'll get a QC, I promise.

[LondonManc]

True. I'll concede your point, but in return I want you to answer a question for me.

How are you going to tell the difference between the guy who actually does know more than your accountant and the guy who is living in cloud cuckoo land and is going to get you in all kinds of trouble with HMRC?

Actually, I have a second question. When HMRC comes calling because they don't like what you did, which answer would you prefer? A) "My accountant told me it was fine, please discuss this matter with him." B) "Uh, some guy on the Internet who went by the handle NLyuckyuck said it should be fine."

I'll tell you how to do what you want. 1) Take all your profit (income minus any expenses you've incurred so far, whether you've paid them yet or not). 2) Pay a dividend in that amount. 3) Loan £10K back to your company as a director's loan. 4) Pay yourself £10K in salary. 5) Write your accountant and telling him you won't take up any more of his time, you aren't using an accountant these days, you're following the advice of WIByuckyuck on the Internet. 6) Send me half the money you would have paid him. Send it in cash because I don't want this traced. 7) If Hector ever comes and asks how you could afford to pay a dividend when you had an outstanding salary obligation of £10K, just tell him it was a bonus you earned after the dividend was paid, it was a TOTAL SURPRISE. It will be fine, I promise. Yuckyuck.

All you need is a QC's letter and you're on to something. I like it.

[WordIsBond]

Heh - I certainly don't know more than my accountant but someone on here might!

True. I'll concede your point, but in return I want you to answer a question for me.

How are you going to tell the difference between the guy who actually does know more than your accountant and the guy who is living in cloud cuckoo land and is going to get you in all kinds of trouble with HMRC?

Actually, I have a second question. When HMRC comes calling because they don't like what you did, which answer would you prefer? A) "My accountant told me it was fine, please discuss this matter with him." B) "Uh, some guy on the Internet who went by the handle NLyuckyuck said it should be fine."

I'll tell you how to do what you want. 1) Take all your profit (income minus any expenses you've incurred so far, whether you've paid them yet or not). 2) Pay a dividend in that amount. 3) Loan £10K back to your company as a director's loan. 4) Pay yourself £10K in salary. 5) Write your accountant and telling him you won't take up any more of his time, you aren't using an accountant these days, you're following the advice of WIByuckyuck on the Internet. 6) Send me half the money you would have paid him. Send it in cash because I don't want this traced. 7) If Hector ever comes and asks how you could afford to pay a dividend when you had an outstanding salary obligation of £10K, just tell him it was a bonus you earned after the dividend was paid, it was a TOTAL SURPRISE. It will be fine, I promise. Yuckyuck.

[LondonManc]

Really cannot be a**ed to find a citation so I'll just say that I was feigning knowledge

FTFY

[Lance]

Citation needed.

Really cannot be a**ed to find a citation so I'll just say that I might be wrong

[Lance]

I was led to believe that it is valid to declare a salary payment despite having no funds to cover it.

Yes you can. That is paying an employee. They are also a creditor.

It is treated as a credit to the directors loan account

that is an option if you can't afford to pay it.


BUT. You can't use a director loan to pay dividends you can't afford.

[TheFaQQer]

PS. A director loan is a director loan and not a dividend, therefore it makes no odds, but does attract unwanted attention.

Citation needed.

[ContractorBanking]

Interesting question regarding salary.

Say you paid your £10.6k salary in week 52 vs monthly over the year, would the £10.6k salary in week 52 attract higher taxes (I was thinking of NI payments)?

Hi all, I need some advice on how best to deal with salary+dividends before April 6th. My situation is as follows: I recently started my Ltd having not previously worked this tax year. I have not yet paid out any salary or dividends. I now have profit of around 13k. I expect to earn over higher rate threshold next tax year.

Can I pay myself the 13 k profit as a dividend (after CT), then after this, declare a salary payment of £10600 as payment to directors loan account (despite no longer having the available funds)?

This would incur more immediate tax than just paying 10k salary + 3k dividends but would have the benefit of effectively shifting some of next years income into this year.

My accountant says this is not allowed as it would 'create negative reserves'. However, I have come here to consult the hive mind for a second opinion as I can't find any info on the web for this situation and don't have 100% faith in their answer.

[gables]

You shouldn't be buggering about

FTFY

In fact I'm amazed at the levels people seem to want to go to save a few quid sometimes, maybe I'm just not switched enough ho hum

[northernladuk]

What happens if you get canned before May 16? You shouldn't be buggering about like this in your first year of contracting.

[Rafd]

the problem you have is no money in the company. If you had money you could extract more (i.e. what you owe to HMRC for example) than you should, and once you get more money in to clear the debt then you're fine. If you don't get more money in then you have to change the dividend to a loan (cos you can't have a dividend made of someone else's money).

But as you just don't have the cash it's academic. Take the £13k in whatever way you feel, but you can't take what you haven't got.

PS. A director loan is a director loan and not a dividend, therefore it makes no odds, but does attract unwanted attention.

In the proposed plan I would set aside enough to cover tax liabilities so that should be ok. I was led to believe that it is valid to declare a salary payment despite having no funds to cover it. It is treated as a credit to the directors loan account - in other words I am loaning money to the company until the salary is actually paid. I found this info here:

Can a Director's Salary be allowed to create a loss and negative Net Assets? | AccountingWEB

[northernladuk]

Heh - I certainly don't know more than my accountant but someone on here might! It can pay to be inquisitive and question things.. at the very least I'll come away with a better understanding.

It does but you're first action should have been to ask your accountant why they came to that conclusion. They should explain it to a level of detail that leaves you in little doubt. If they don't keep asking them until you do. That's the way you learn, not by second guessing them with some guys on the net.

[LondonManc]

the problem you have is no money in the company. If you had money you could extract more (i.e. what you owe to HMRC for example) than you should, and once you get more money in to clear the debt then you're fine. If you don't get more money in then you have to change the dividend to a loan (cos you can't have a dividend made of someone else's money).

But as you just don't have the cash it's academic. Take the £13k in whatever way you feel, but you can't take what you haven't got.

PS. A director loan is a director loan and not a dividend, therefore it makes no odds, but does attract unwanted attention.

+1

I made a minor cockup in the first year I was limited company as I was too busy clearing a personal loan off. I'd overpaid dividends when it came to corporation tax time and fronted up to them; I had money due to come in so knew I could clear it within two months. The best advice that I can give is that you must, must, must ring them. Explain that you've made a mistake, hit a cashflow issue and ask if you can pay your CT or whatever it is you owe by instalments as quickly as you reasonably can.