Reply to: Sounds like backdating

[BlasterBates]

I've adjusted my accounts occasionally within an accountancy period (usually due to errors and omissions) without any queries in two different tax jurisdictions. My accountants who are generally risk averse never even raised an eyebrow. So long as your accounts, paperwork and statements match up, there is no risk, and while technically not allowed, for a micro-company, it really makes no difference, so no-one cares.

Indeed everything should be documented and payment dates not changed, but perfectly ok.

Salary increases are often backdated to the beginning of the tax year. What you can't do is manipulate the dates of payments, and any backdated salary increase should not be taxed in the previous year.

For example you backdate a salary increase to June, you pay the difference in September.

If you're nervous you can ring up HMRC and ask them.

[NotAllThere]

I have low risk tolerance and this sounds too dodgy to my liking, which is why I raised this question in this forum and also taking on a new accountant.

I've adjusted my accounts occasionally within an accountancy period (usually due to errors and omissions) without any queries in two different tax jurisdictions. My accountants who are generally risk averse never even raised an eyebrow. So long as your accounts, paperwork and statements match up, there is no risk, and while technically not allowed, for a micro-company, it really makes no difference, so no-one cares.

[NCo]

Just to clarify, the request to add my wife came from me but the suggestion to backdate the salary (run payroll back to July) and re distribute the dividends came from the accountant.

I have low risk tolerance and this sounds too dodgy to my liking, which is why I raised this question in this forum and also taking on a new accountant.

I appreciate all the responses here, and I'm glad that I am leaving my current accountant.

[WordIsBond]

Are you asking about backdating salary or backdating dividends?

Backdating salary. Salary payments are supposed to be reported in real time to HMRC. You are supposed to use software to do this. Have you been doing so? If not, you either haven't made any salary payments or you've got a problem.

A director's National Insurance thresholds are based on how long they've been a director. You can't backdate it.

You can pay your Mrs anything you want in a salary as long as there's some smidgeon of business justification for what you pay. In general I wouldn't go past about £700 / month if all she's doing is a little bookkeeping, signing the accounts as a director, and bringing you coffee occasionally. But whatever you pay her is going to be subject to NIC if it exceeds £8632 * (days as a director/days in tax year). It will be subject to Income Tax to the extent that it takes her income past the Personal Allowance.

That's salary. As to dividends, if you've taken dividends but didn't give her any, and now you want to, as suggested above you could cheat, lose the paperwork on your dividends, say they were directors loans, now pay some dividends to both of you (once she has her shares), and pay back the loans out of the dividends you get. You probably would never get caught, but if you do, you'll be in a world of hurt for tax evasion. Or, you could just issue her shares now and pay dividends to both of you going forward. It means a little bit less you'll be able to take out of the company before you hit the higher rate band this year. Too bad, but I bet you'll survive. It also means a little bit more in retained profit in the company, which can be used to pay salary and dividends to both of you next year or the year after when you are on the bench and can't find a gig.

So, you can't really backdate dividends legally (though you'd probably get away with it given the short timescale). You can backdate salary but can't backdate NI-free payments.

There is one way I know of to backdate salary. If you are using HMRC's Basic PAYE Tools, it has (or at least it used to have) the ability to handle mis-timed payments. You could go back and pay the Mrs a salary for prior months before she became a director, just as an employee. You probably can't justify paying very much for a non-director spouse -- how much work was she really doing? But you could maybe pay her £2-300 if she did the bookkeeping. So, pay her £800 now and report a mistimed payment which was due as £200 in July, £200 Aug, £200 Sept, £200 Oct. Then, pay her £720 for this month, and going forward. You won't incur any NI for that, and it is actually probably legal.

I really don't think you want to try to mess around with pretending she was a director or shareholder from July and trying to backdate anything beyond a little bit of salary. You've not really lost that much. Keep things clean and get an accountant who doesn't want to push the boundaries.

I am not an accountant and perhaps some of the accountants who post here are aware of ways to legally do what your accountant suggested. In which case I'd withdraw what I've said. But IMO this sounds quite shady.

[BlasterBates]

Thanks for the detailed reply.

I assume they are changing to a date later than the formation but prior to the first dividend which was issued in August.

There is quite a bit of retained profit, and adjusting the past dividends will be a substantial tax saving, but as you said - I wouldn't risk it.

There is absolutely no risk in backdating. It makes admin easier as you don't have to adjust the salary again.

The point is that the payments are correctly dated. i.e. a payment made in in this tax year shouldn't be taxed in the previous year. You tax based on payment dates not when the salary is to be calculated.

Just make sure the payments and the tax period correspond.

[Lance]

I

My wife gets added next week as a shareholder and employee. One accountant suggest backdating her salary from July and making a backdated dividend split. The other says this is impossible.

It's not really legal. That doesn't mean it can't be done.
One method is to change the dividend issues previously to a loan. And destroy all paperwork regarding dividends being issues (board minutes etc.)

That way no dividends have been issued at all.
When the wife gets her shares you issue the first dividend, and your part of the dividend pays off the loan.

[Amanensia]

Your second aggressive and rude response, dont you have other things to do?

He really doesn't. There are people on here you will learn to ignore!

[GhostofTarbera]

Sounds like backdating

Your second aggressive and rude response, dont you have other things to do?

Just trying to keep you out of jail

3rd post


Do tell us what your wife role in the company is ?

Bookkeeper ??

Lol

Sent from my iPhone using Contractor UK Forum

[NCo]

What’s your wife job in your company ?

Sounds like tax aversion to me, as she really does nothing ????


Sent from my iPhone using Contractor UK Forum

Your second aggressive and rude response, dont you have other things to do?

[NCo]

Her salary doesn't need to be back dated at all, so there is no need to think about that. Instead of paying her a salary that is split over 12 months, split it over 6 or whatever. There is no benefit in back-dating the employment, so let's ignore that part.

There is no legal requirement to notify Companies House of any share transfer until your next confirmation statement, so there is no way for CoHo to know when the shares were given.

Is the first accountant suggesting to change the initial share allocation (ie back date it as if it was done on incorporation), or changing it with a date that is later than incorporation but prior to the dividend being paid?

Personally, I wouldn't run the risk of back dating it, even if it is allowed in some eyes. Given that the company was only formed in July, there can't have been that much retained profit in the company to be able to pay a dividend, so it's all a bit of a moot point in my eyes. By all means do the share transfer and set her up on payroll (think about what you are paying her for, though) from now on, but I wouldn't bother with messing about with back dating things for something that can't really have a significant benefit.

Thanks for the detailed reply.

I assume they are changing to a date later than the formation but prior to the first dividend which was issued in August.

There is quite a bit of retained profit, and adjusting the past dividends will be a substantial tax saving, but as you said - I wouldn't risk it.

[GhostofTarbera]

I'll clarify.

My wife gets added next week as a shareholder and employee. One accountant suggest backdating her salary from July and making a backdated dividend split. The other says this is impossible.

I tend to agree with the second, but was wondering if anyone had ever heard anything similar.

What’s your wife job in your company ?

Sounds like tax aversion to me, as she really does nothing ????


Sent from my iPhone using Contractor UK Forum

[NotAllThere]

What matters is what the books show. Technically, once a transaction has been recorded, it should stay (possibly with a reversal) so there's a clear audit trail. But unless you're using blockchain, you can always rewrite your accounts before they get submitted. Doing it after they're submitted is not allowed of course, although bone fide corrections can be done.

[DeludedKitten]

I'll clarify.

My wife gets added next week as a shareholder and employee. One accountant suggest backdating her salary from July and making a backdated dividend split. The other says this is impossible.

I tend to agree with the second, but was wondering if anyone had ever heard anything similar.

Her salary doesn't need to be back dated at all, so there is no need to think about that. Instead of paying her a salary that is split over 12 months, split it over 6 or whatever. There is no benefit in back-dating the employment, so let's ignore that part.

There is no legal requirement to notify Companies House of any share transfer until your next confirmation statement, so there is no way for CoHo to know when the shares were given.

Is the first accountant suggesting to change the initial share allocation (ie back date it as if it was done on incorporation), or changing it with a date that is later than incorporation but prior to the dividend being paid?

Personally, I wouldn't run the risk of back dating it, even if it is allowed in some eyes. Given that the company was only formed in July, there can't have been that much retained profit in the company to be able to pay a dividend, so it's all a bit of a moot point in my eyes. By all means do the share transfer and set her up on payroll (think about what you are paying her for, though) from now on, but I wouldn't bother with messing about with back dating things for something that can't really have a significant benefit.

[NCo]

You can pay yourself a wage and dividends at any time you want. You run the company. Pay yourself once a month, once a year. Doesn't matter as long a as RTI and dividend paperwork is completed you are good to go.

I'll clarify.

My wife gets added next week as a shareholder and employee. One accountant suggest backdating her salary from July and making a backdated dividend split. The other says this is impossible.

I tend to agree with the second, but was wondering if anyone had ever heard anything similar.

[northernladuk]

You can pay yourself a wage and dividends at any time you want. You run the company. Pay yourself once a month, once a year. Doesn't matter as long a as RTI and dividend paperwork is completed you are good to go.