Can salary ever be not deductible for CT purposes?

[NeverBackToPerm]

We explained this to him in his last long thread on this topic.

https://forums.contractoruk.com/acco...f-trading.html

Sounds like the accountant has had enough of him and said do it if you want to, it's your call.



And we've seen with other posts that just won't let a topic drop despite being given many words of wisdom, whatever we say doesn't matter a jot. The OP knows what he (wrongly) wants to do and nothing we tell them will make any difference.

It's just another of these 'Yes you are right, go ahead and do it you'll be fine' type threads.

Hasn't someone explained this before? I appear to be having a deja vu moment.

Well obviously nobody explained it to my accountant and I get a deja vu moment every time I read one of your troll posts.

[northernladuk]

Weird. A company can spend its money on anything its directors deem appropriate that is legal and doesn't breach their fiduciary duties. The only issue here is whether it is tax deductible, which rests on whether it meets the "wholly and exclusively" test (it appears not). I would ask your accountant for clarification about what, precisely, they mean, asking them to cite some evidence. It's safe to say that HMRC are highly unlikely to challenge something when there is no tax at stake, so I'm curious about who your accountant thinks is policing this.

Hasn't someone explained this before? I appear to be having a deja vu moment.

[jamesbrown]

I didn't explain myself very well but I think this is exactly what my accountant is disagreeing with:

"You wouldn't be able to draw a salary, without including this as a business expense, as by its very nature an employee salary is an expense."

Weird. A company can spend its money on anything its directors deem appropriate that is legal and doesn't breach their fiduciary duties. The only issue here is whether it is tax deductible, which rests on whether it meets the "wholly and exclusively" test (it appears not). I would ask your accountant for clarification about what, precisely, they mean, asking them to cite some evidence. It's safe to say that HMRC are highly unlikely to challenge something when there is no tax at stake, so I'm curious about who your accountant thinks is policing this.

[NeverBackToPerm]

I am not following you, but you do sound confused.

There are two separate things here.

One is payment of a salary. You can always do that, it is entirely up to you as a director. You can set the level and the timing and file PAYE RTI accordingly.

Another is whether the salary is a legitimate business expense. That needs to meet the "wholly and exclusively" test, which is the test you probably cannot meet. If you could meet it, then you would carry back the loss and offset against profits in the earlier period. If you cannot, then you do not - it doesn't stop you paying the salary, but you won't get any tax relief (whether for the current period or an earlier period).

I didn't explain myself very well but I think this is exactly what my accountant is disagreeing with:

"You wouldn't be able to draw a salary, without including this as a business expense, as by its very nature an employee salary is an expense."

[Lance]

No reason to stop salary if not actively trading. Otherwise all those 1000s of startups would not be able to pay salary to their staff !!

There are many reasons the OP would choose to pay salary; Was looking for client even if simply looking at job sights and LinkedIn periodically; Training and development, even if it was watching Python training videos on Youtube.

I'm not sure this counts. You cannot claim training as a business expense as it doesn't meet the wholly and exclusively test. So it's probably the ONLY activity that doesn't help the OP.

[Nava39]

No reason to stop salary if not actively trading. Otherwise all those 1000s of startups would not be able to pay salary to their staff !!

There are many reasons the OP would choose to pay salary; Was looking for client even if simply looking at job sights and LinkedIn periodically; Training and development, even if it was watching Python training videos on Youtube.

[Lance]

this all boils down to the same decision point as the other thread.
Is the company trading or not?
If it is then crack on with salary etc....

If it's not trading then the subsequent questions are why? If OP is looking for work but cannot find then it is trading. If OP is not planning on work then just wind the company be done done with it.

I assume (although this may be wrong) that the OP isn't working at all, as if they were working elsewhere then taking a salary is not tax efficient.

So given those things, either :

• Company is trading and the accountant is mistaken
• Company is not trading and OP should just close it down ang get the cash out (note that whilst winding the company, taking a a salary is justifiable; as someone needs to do it)
• OP is being really daft but has failed to provide all the information

[jonnieboy]

As an aside, from your responses to me and others, it seems like you get off on talking down to people and being rude. I find this behaviour unacceptable and will be making a complaint to the site administrator.

You need to grow up. If you can't, leave and don't let the door hit you in the a**e too hard. It's a public forum and northernladuk made no threats or offensive comments. Maybe public forums aren't for you....

[jamesbrown]

Thank you. I had assumed that the process was that the salary created a loss and then you just didn't carry it back or forward rather than not creating the loss in the first place by calling it a non business expense. Is it reasonable then to process salary when you are not calling it a business expense or does this raise the question if this is not a business expense why is the business paying it?!?

I am not following you, but you do sound confused.

There are two separate things here.

One is payment of a salary. You can always do that, it is entirely up to you as a director. You can set the level and the timing and file PAYE RTI accordingly.

Another is whether the salary is a legitimate business expense. That needs to meet the "wholly and exclusively" test, which is the test you probably cannot meet. If you could meet it, then you would carry back the loss and offset against profits in the earlier period. If you cannot, then you do not - it doesn't stop you paying the salary, but you won't get any tax relief (whether for the current period or an earlier period).

[NeverBackToPerm]

And we've seen with other posts that just won't let a topic drop despite being given many words of wisdom, whatever we say doesn't matter a jot. The OP knows what he (wrongly) wants to do and nothing we tell them will make any difference.

It's just another of these 'Yes you are right, go ahead and do it you'll be fine' type threads.

Nope. If you had read the post properly you would have understood that I was trying to follow the advice and not carry back a loss.

As an aside, from your responses to me and others, it seems like you get off on talking down to people and being rude. I find this behaviour unacceptable and will be making a complaint to the site administrator.

[NeverBackToPerm]

I think you've simply misunderstood your accountant. They are saying that, ultimately, the decision is yours w/r to whether you can justify a salary as a business expense. They will enact your decision. Carrying the loss back is simply a mechanical exercise that stems from that decision, in order to gain the allowed offset against CT paid in an earlier period (since you have no profit and hence no CT in the current period). But, as established in your earlier thread, it would be a bold shout given that you haven't been seeking work and have effectively retired.

Thank you. I had assumed that the process was that the salary created a loss and then you just didn't carry it back or forward rather than not creating the loss in the first place by calling it a non business expense. Is it reasonable then to process salary when you are not calling it a business expense or does this raise the question if this is not a business expense why is the business paying it?!?

[northernladuk]

"Not trading" is distinct from "Dormant" incidentally.

We explained this to him in his last long thread on this topic.

https://forums.contractoruk.com/acco...f-trading.html

Sounds like the accountant has had enough of him and said do it if you want to, it's your call.

But, as established in your earlier thread, it would be a bold shout given that you haven't been seeking work and have effectively retired

And we've seen with other posts that just won't let a topic drop despite being given many words of wisdom, whatever we say doesn't matter a jot. The OP knows what he (wrongly) wants to do and nothing we tell them will make any difference.

It's just another of these 'Yes you are right, go ahead and do it you'll be fine' type threads.

[jamesbrown]

I think you've simply misunderstood your accountant. They are saying that, ultimately, the decision is yours w/r to whether you can justify a salary as a business expense. They will enact your decision. Carrying the loss back is simply a mechanical exercise that stems from that decision, in order to gain the allowed offset against CT paid in an earlier period (since you have no profit and hence no CT in the current period). But, as established in your earlier thread, it would be a bold shout given that you haven't been seeking work and have effectively retired.

[malvolio]

If you were actively and provably looking for work while out of work - assuming that's why no revenue - then YourCo is trading and salary is a business cost.

However if you had voluntarily taken time out, or the company was sat idle while you were doing something else then it is not trading and hence your salary is not deductible for CT.

"Not trading" is distinct from "Dormant" incidentally.

Which is what your accountant is saying, although your last sentence seems to indicate you don't understand him...

[NeverBackToPerm]

My ltd made a loss due to the payment of salary while there was no revenue. My accountant has said that it is difficult to justify paying salary when not trading. I took this to mean that it would not be appropriate to offset the loss against the previous year for CT purposes (which people agreed with in my previous thread). However they have now said:

"If you would be happy to justify the salary as a business expense in the accounting period, this would require the same justification for carrying the loss back. Ie. you couldn’t be happy to justify one, but not the other, as the trading loss is a direct result of the salary and other expenses incurred during the period."

In other words if you do pay yourself a salary when not trading, then to be consistent, you must offset the resulting loss?!?