Timing of salary payments in relation to tax year.

[PhilMUK]

Afternoon all.

The forum provided me with excellent advice earlier on in the month and I wanted to see if I could obtain a consensus view on the following topic, as the research I've done does not see to yield a clear cut answer. I like to be well informed when I have a discussion with my accountant.

I was a permie until the start of February '16 at which point I started working for myself. I have hence used up the £10.8k PA for 15/16 through employment.

Now, in terms of paying myself a tax efficient directors salary, should I begin this immediately( i.e pay myself £883 (£917 for 2016/17)), or wait until the April 30th payroll when the PA resets and begin paying myself £917 so that none of the salary gets taxed for NI & PAYE? Is there any issue with the fact I would be "deferring" February and March salaries to April, and then amortizing the remainder of the £11,000 balance as a salary over the remainder of the 16/17 tax year?

Point 2: I have employed my brother and he goes into work on set days. He still has the majority of his PA left for the 15/16 tax year. Am I able to pay him two large payments of c.£4k a month for February and March to utilize the PA and then drop it from April so its the most tax efficient for him?

Just was not sure if I was breaking any regulation here.

Thanks for the help. Hope it was clear.

Phil

[mudskipper]

Afternoon all.

The forum provided me with excellent advice earlier on in the month and I wanted to see if I could obtain a consensus view on the following topic, as the research I've done does not see to yield a clear cut answer. I like to be well informed when I have a discussion with my accountant.

I was a permie until the start of February '16 at which point I started working for myself. I have hence used up the £10.8k PA for 15/16 through employment.

Now, in terms of paying myself a tax efficient directors salary, should I begin this immediately( i.e pay myself £883 (£917 for 2016/17)), or wait until the April 30th payroll when the PA resets and begin paying myself £917 so that none of the salary gets taxed for NI & PAYE? Is there any issue with the fact I would be "deferring" February and March salaries to April, and then amortizing the remainder of the £11,000 balance as a salary over the remainder of the 16/17 tax year?

Point 2: I have employed my brother and he goes into work on set days. He still has the majority of his PA left for the 15/16 tax year. Am I able to pay him two large payments of c.£4k a month for February and March to utilize the PA and then drop it from April so its the most tax efficient for him?

Just was not sure if I was breaking any regulation here.

Thanks for the help. Hope it was clear.

Phil

Not sure what you mean by deferring salary? It would be quite common for a director not to take a salary for the first few months of operation to build up reserves.

The key question here is whether you're operating outside IR35. If you are inside IR35, then you have to operate PAYE from the outset.

Regarding your brother - is he a director? Shareholder? Is his work fee earning? Does he have an employment contract? Sounds like a potential minefield.

If you don't already have an accountant, get one. These are exactly the sort of questions that your accountant should be able to help with, based on your personal circumstances.

[PhilMUK]

Not sure what you mean by deferring salary? It would be quite common for a director not to take a salary for the first few months of operation to build up reserves.

The key question here is whether you're operating outside IR35. If you are inside IR35, then you have to operate PAYE from the outset.

Regarding your brother - is he a director? Shareholder? Is his work fee earning? Does he have an employment contract? Sounds like a potential minefield.

If you don't already have an accountant, get one. These are exactly the sort of questions that your accountant should be able to help with, based on your personal circumstances.

Thanks for the prompt response mudskipper.

I am operating outside of IR35. I know there is a large amount of discretion when it comes to directors salary, and as such it's a myth to think that they need to be paid in equal amounts over 12 months. Paying myself a salary from April on wards seems sensible.

Regarding my brother, as you pointed it out it does appear to be a potential minefield. I have not had the discussion with my accountant as to whether a director or employee role is best suited but I will do so.

[northernladuk]

Get an accountant and do things properly. Don't run your business from free advice on a forum, particularly if you have ideas of doing things as daft as involving your brother. If you brother has nothing to do with the company then keep him out of it.

[WordIsBond]

Wow. An employer without an accountant. Do you know all the legal requirements of being an employer? Do you have Employer's Liability insurance? Do you know about Pension AE?

Yes, you can pay your brother whatever you and he agree, in general. If you pay him £4K a month he will have employee National Insurance tax (12%) on most of it, but it will save you 20% on corporation tax. If you make him a director, then the employee NI picture changes and your accountant can help you with this, once you have enough sense to get an accountant, anyway.

Have you claimed Employment Allowance? If not, you will also be subject to employer's NI on most of what you pay him. If you have, it will be fine. You should claim it, and you should be able to claim it for next year, too, unless the rules change.

This is a minefield if you don't know what you are doing.

[ASB]

You can do what you describe.

for yourslf there is no requirment to pay a salary. By all means start in april. This is an entirely reasonable thing to do.

for your brother - and if I were a cynic I would assume it is intended to flow back to you somehow - you need to consider the best rate to pay him from an ni perspective.

you will of course also have an impact on his benefits should he receive any.

ther is also the qiestion of what he is going to do for the money. Paying him 8k for 2 months work this year and the same for 12 months next year does have a strong whiff about it.

[Louisa@InTouch]

Hi Phil,

In regards to you not taking any salary for the last couple of months in 15/16, this is entirely up to you as the director.

What is important is that if not all of your basic rate band has already been used up, that you make sure to take dividends to maximise your income. Before the new tax rates on dividends from 6 April 2016.

As for your brother, if he is only an employee of the business to you will need to consider if that salary level would be reasonable and commercial for someone doing the same role? (If they were not related to you...).