New Limited Company - 'Parking' Salary Until Company Secures Clients.

[SueEllen]

Just run your expenses by your accountant if you are not sure that you can claim them.

[PSK]

Thanks to everyone for their help.

Blacjac and GregCapitalCity - Thank you, I'll go and do some research before I meet the accountant.

SueEllen - Thanks for your help. Based on my replies, not sure why you think I "want the others to say what you want". This is not the case.

Northernladuk - Thanks though hardly. My accounts for 10/11 haven't been submitted, finalised and closed. The accounting period has ended and accounts will be submitted by the dealine. I want to clarify some things. I want to understand the boundaries of my knowledge and recognise in this area, my understanding isn't perfect which is why I am using an accountant. If it is appropriate, I will 'lump a bunch of costs (some expenses)' in the 10/11 accounts though these will be accounted for properly in both sets of accounts. When I work through the preparation of the accounts over the next couple of months, I realise there may be a range of things that are handled differently to my initial expectation, either to a benefit or loss.

Thanks to all.

[blacjac]

I think what you should have done is to pay yourself a salary during the first year, then immediately loan it back to the company.

The net effect is that no money changes hands - but you have been paid a salary.


I suspect from your tone that this is what you are thinking of when you talk about deferring salary to the next tax year. But as others have said - if you didn't register it with the tax office, didn't get wage slips and didn't submit the end of year PAYE returns, then you can't now withdraw that salary.

[SueEllen]

Could you not have accrued your expenses on behalf of the company as a Directors Loan account or similar.

Such that now the company has money it can reimburse you?

Read the first post

His accountant stated he can be repay the expenses he paid for personally.

[Scrag Meister]

Could you not have accrued your expenses on behalf of the company as a Directors Loan account or similar.

Such that now the company has money it can reimburse you?

[Greg@CapitalCity]

If you had your company registered for PAYE during 2010/11 then I would say fine, go for it. Having said that however, and if that was the case, then your P14/P35/P11D returns would need to have been done by now, which would have declared that salary. I get the feeling from your posts that your company was not registered for PAYE for 2010/11 so although I am not sure 'improper' is the right word, its probably is on the right track if you wanted to backdate a PAYE registration, file your PAYE returns late, and declare a 2010/11 salary. I have not done this before - the HMRC might even just block it and say sorry, you back backdate a PAYE registration for the previous tax year now.

On the plus side, if during 2010/11 you were a basic rate taxpayer with income from other sources, the Corp Tax saving of paying a £7k salary would be offset by the additional PAYE you would need to pay - so no tax savings to be had doing this anyway. And if you were a 2010/11 higher rate tax payer, you would be better not paying any ltd company salary during 2010/11 at all in anticipation of extracting funds from your business in a more tax efficient way at some point down the road.

[SueEllen]

Thanks Geoff,

I think he seemed to be saying something a bit firmer, that it would be improper for the company to treat the salary as deferred and pay the salary from 04/10 - 03/11 which is what surprised me.

Thanks and regards.

As you seem to want the others to say what you want then it should be put more bluntly -
You cannot pay yourself a deferred salary for the last tax year.

There is no legal obligation that forces a director of a company to pay themselves a salary at all, however there are legal obligations for employees to be paid. This is why start ups burn up money - they are paying staff wages as well as other things like marketing, investing in infrastructure etc.

If you want to take money out of the company now and you are a shareholder, then you need to hold a board meeting and distribute dividends to all shareholders. Your accountant should explain how to do this and the paperwork you need if you ask him.

[northernladuk]

Thanks Geoff,

I think he seemed to be saying something a bit firmer, that it would be improper for the company to treat the salary as deferred and pay the salary from 04/10 - 03/11 which is what surprised me.

Thanks and regards.

Why would it surprise you? Your accounts for that period have been submitted, calculated and closed. We are in a different period. Defering money and going back to old accounts etc shouldn't be required if finances are run properly so it either looks like you can't run your accounts or are up to something decidedly dodgy.

You are a limited company, you are expected to submit accounts for shareholders etc, if you start shifting money about it affects profit/loss/dividends and everything. Would you be a share holder in say BT if they suddenly decided to lump a load of costs in here and there which directly affected the dividends you get from them? No because it would be a real mess.

If we could all go back and move deferred money about budgets would be useless and the world would be a mess.

[PSK]

Thanks Geoff,

I think he seemed to be saying something a bit firmer, that it would be improper for the company to treat the salary as deferred and pay the salary from 04/10 - 03/11 which is what surprised me.

Thanks and regards.

[PSK]

Thanks though I've made no withdrawals and no accounts have been drawn up (I've been told they need to be with Companies House by 9th December) so I asked the question of my accountant and here to understand how to handle this issue.

I'll reread the guides though I've a little understanding of the ways in which money may be withdrawn from a 'steady state' operating company though I asked the question about transitioning from start up to steady state.

I was surprised about how the accountant proposed to handle this deferred or backdated salary. I've seen start ups incur significant salaries as they burn through their investors' money bringing a product to market and thought I'd 'deferred' my salary in similar circumstances. I suppose I'm interested whether rules are different for one man bands or whether I should have put the money into the business bank account before taking it out as salary though some of the other expenses I've incurred have been from personal bank accounts when I've needed to spend straight away and haven't had the money in the company bank. Now the revenue is flowing, I'll operate the company in a different way.

As you say, the difference probably won't be large. I suppose I'd thought of the £7000 being withdrawn without much tax but I suppose the knock on effect will be to get an additional £7000 taxed at the higher rate.

Thanks and regards.

[geoff from contracta IOM]

I assume what your accountant is actually referring to is the fact that if you receive funds as salary you will incur a tax and NI liability ( it can't be a dividend as the company didn't make any money ) whereas if you repay the start up capital you introduced there is no tax or NI liability.

[northernladuk]

I didn't see it as being backdating any more than I saw the company paying me back the £1000s I'd spent funding its expenses as backdating?

That said, I am ignorant about many accoutning and tax and employment requirements and issues in this area which is why I asked my accountant and why I'm posting here.

Surely if you are starting contracting and business ventures the first and most important thing you understand is your money? As a director you have a legal obligation to be aware of your accounts and if they are incorrect it is comes down to you. Being ignorant is not a defence. That aside being ignorant of how you pay yourself and earn your money is just a bit

If you look in the guides to the right hand side there is a link called Limited Companies. In there is a link to 'How to draw out money from a limited company' which explains the basics.

You don't mention how much this is but yes pay yourself a small wage and then take divi's from profit. You can give yourself a divi anytime you want if you have the profit. That means even if you have not paid yourself the 'backdated' pay you can divi it out to yourself. You may just lose the tax benefits of a couple of months salary. I don't know about backdating the pay itself though.

Your accountant seems to be on the right track with the advice but not being very helpful. This could be down to you asking him the wrong questions in your ignorance. Read up and go back to him armed with new information and work out a solution that suits you.

[PSK]

Thanks for taking the time and for your response.

I think I was asking the question for both periods between 01/04/2010 to 31/03/2011 and 01/04/2011 to June 2011 (my company year end matches the financial year end, not that I know that's relevant) when the plan b reached earning fruition so yes, backdating before 04/2011.

I didn't see it as being backdating any more than I saw the company paying me back the £1000s I'd spent funding its expenses as backdating?

That said, I am ignorant about many accoutning and tax and employment requirements and issues in this area which is why I asked my accountant and why I'm posting here.

Thanks and regards.

[Clare@InTouch]

What period are you proposing paying salary for? Is it possible he's referring to it not being right to backdate a salary prior to April 2011?

[PSK]

I set up a new company and worked on a plan B for a year and a bit. I funded the expenses personally and didn't draw a salary. Now the company has client income, my accountant advises the loans for expenses can be repaid but paying a salary for the period between start up and securing paying clients would be improper which surprised me. I will discuss this with the accountant when we next meet to understand the issues.

I worked full time and can evidence this.

I wondered if any contractors have experienced similar issues when working in a one person start up or when on the bench in a new company and what advice, if any, they received?

I suppose the net effect would potentially be approximately £7000 being payable out of the business without significant tax or not hence potentially moving £7000 into a higher rate of tax if withdrawn as dividends beyond the higher rate threshold? Grateful for a clarification if I've misunderstood this.

Thank you.