Reply to: Pro-rata NI for director appointed at the end of tax year

[northernladuk]

So maybe you haven't after all.

I still think I'm not so far off

[WordIsBond]

And I think we've pretty much clarified the OPs tolerance

So maybe you haven't after all.

[Contrator]

Thanks for your advice. I decided to appoint my wife now and pay her more balanced remuneration.

[WordIsBond]

If he's going to bugger about doing that he might as well just take the stupid option and hope he doesn't get caught. That's not going to fool anyone.

Outside the one-man band world, advance payments to directors are hardly rare or eyebrow-raising material. FWIW.

As I said, I wouldn't muck around with this.

[northernladuk]

I think you can do what you are suggesting under current rules, but I am not an accountant. I personally would not do it because of the new aggressive avoidance rules and this might be considered to cross that line.

This

If you do decide to do it, I think it would be very stupid to pay your wife £11.8K for one month and then £11K for 12 months. So what you do is you pay her £1.8K / month, and you pay her the amount for one month in March. Then, you make an additional £10K advance/anticipatory payment in March as an advance on the next year's fees. NI is due when the advance/anticipatory payment is made, not when it is earned. The page you linked above, page 9, item 30.

That way at least you can claim you DIDN'T pay her £11K for one month and then less than £1K per month for the following months. You just made an advance payment to a director to bring some of the money into this tax year. Happens all the time.

If he's going to bugger about doing that he might as well just take the stupid option and hope he doesn't get caught. That's not going to fool anyone.

I didn't think you could pay in advance for work not done yet either.

Again, I wouldn't do what you are suggesting. I don't think the savings is enough to make it worth looking so suspicious. If you are going to make her a director do it now and pay her now and pay a few quid extra tax, you are still making a real nice savings over not doing so. This just strikes me as greedy and risky and not worth it.

Totally this.

But everyone has their own risk tolerance.

And I think we've pretty much clarified the OPs tolerance

[WordIsBond]

I think you can do what you are suggesting under current rules, but I am not an accountant. I personally would not do it because of the new aggressive avoidance rules and this might be considered to cross that line.

If you do decide to do it, I think it would be very stupid to pay your wife £11.8K for one month and then £11K for 12 months. So what you do is you pay her £1.8K / month, and you pay her the amount for one month in March. Then, you make an additional £10K advance/anticipatory payment in March as an advance on the next year's fees. NI is due when the advance/anticipatory payment is made, not when it is earned. The page you linked above, page 9, item 30.

That way at least you can claim you DIDN'T pay her £11K for one month and then less than £1K per month for the following months. You just made an advance payment to a director to bring some of the money into this tax year. Happens all the time.

Again, I wouldn't do what you are suggesting. I don't think the savings is enough to make it worth looking so suspicious. If you are going to make her a director do it now and pay her now and pay a few quid extra tax, you are still making a real nice savings over not doing so. This just strikes me as greedy and risky and not worth it.

But everyone has their own risk tolerance.

[northernladuk]

It’s not a salary. It’s director’s remuneration for accepting legal responsibilities of being director, optimising its tax strategy, office, bookkeeping etc. Does director compensation have to be time-proportional?

To avoid it looking like you are just taking the piss and driving your company for tax and not business reasons yes. Paying 11k for the last 2 months and then 11k for the whole 12 months next year surely has to fall in to the Aggressive avoidance rules. OK TCP makes the point about legal responsibilities but honestly, what a crock. Your wife won't touch your company again ever... 11k for 2 months shouldering responsibilities? Some contractors get close to that for not only shouldering the responsibilities of a director and putting 40 days work in.

It’s not a salary. It’s director’s remuneration for accepting legal responsibilities of being director, optimising its tax strategy, office, bookkeeping etc. Does director compensation have to be time-proportional?

It's not?

I'd like to appoint my spouse as a second director of my ltd. She will not be a shareholder. She has no other income. I'd like to draw her salary in a legal and tax efficient way.

But cool story bro. And 5k a month for doing that?

[Contrator]

What is she going to do to earn this salary?

It’s not a salary. It’s director’s remuneration for accepting legal responsibilities of being director, optimising its tax strategy, office, bookkeeping etc. Does director compensation have to be time-proportional?

[northernladuk]

£11,850 in March.

If she's only been a director for 2 months how can you pay her a full year's wage?

[Contrator]

Are you proposing to pay her £11850 in March? or 1/12th of 11850 in March?

£11,850 in March.
If it was 1/12th then of course effect of pro-rata NIC would be “equalised”, and my question wouldn’t be valid.

[northernladuk]

zzzz

(yawn)

[pr1]

What is she going to do to earn this salary?

zzzz

[pr1]

Are you proposing to pay her £11850 in March? or 1/12th of 11850 in March?

[TheCyclingProgrammer]

What is she going to do to earn this salary?

Bear the legal responsibility of being a director?

[northernladuk]

What is she going to do to earn this salary?