2011 profits, amend p35 or pay Corp Tax?

[ninak]

Our Ltd Co. will have a profit this year. Looking for advice on options. To reduce the amount of tax due in Corporation and closed service Co surcharge I believe I have the following options:
1. Increase directors wages to bring us into 40% band.
2. Amend 2010 and 2011 P35 to bring directors wage up to the max at the 20% as we were not taking much out in wages previously. (I have been advised that this is possible to do).
3. Pay the taxes and find a way to have a loss 2012/13 , through pensions, wages increase, etc, and offset against corp taxes paid 2011/12.

If I decide to go with option 1, amend previous p35's, do I have to physically pay out that amount in wages or can I just pay the amended amount in PAYE and PRSI and have the wages as owing in accruals at year end. Having that amount of cash come out of the Co a/c would mess up cash flow at the moment. Any advice appreciated.

 

[Paddy199]

OK to not pay out wage and post to directors account but must pay payroll taxes.

Very late now to be amending a P35. Others may advise on this. Is it even possible to amend 2010 P35? Surely not.

 

[ninak]

I thought it was too late for 2010, but my accountant says its OK, not sure though.

 

[Paddy199]

If the 2010 accounts (and personal tax return) are finalised, how can the P35 be amended at this stage?

 

[mandelbrot]

If the 2010 accounts (and personal tax return) are finalised, how can the P35 be amended at this stage?

You're right, they can't. This kind of messing around without any legitimate basis is something Revenue are taking an increasingly dim view of. It's tantamount to attempting to change history.

By "legitimate basis" I mean, for example, you discover when doing next year's accounts that there was a factual error in the amount of emoluments recorded in the prior year's accounts, not that it now suits you to put a different slant on something that has already happened.

 

[T McGibney]

You're right, they can't. This kind of messing around without any legitimate basis is something Revenue are taking an increasingly dim view of. It's tantamount to attempting to change history.

By "legitimate basis" I mean, for example, you discover when doing next year's accounts that there was a factual error in the amount of emoluments recorded in the prior year's accounts, not that it now suits you to put a different slant on something that has already happened.

Wise words, directly from the horse's mouth, as it were. No point in messing around now if it will only raise Revenue hackles. Nobody ever went broke by paying 12.5% Corporation Tax.

 

[ninak]

Yeah, have been thinking the same. Weird that the accountant has suggested that as a viable option. I really was not sure about it. Thanks for the input. Will prob just up the wages for the remainder of this year and head into the 41% tax world, and pay the taxes on remaining profits, if any.

 

[Brendan Burgess]

Forget about 2010. You can't do anything about that now.

If you have not submitted your company's accounts for 2011, then you can accrue salaries for the directors up to a level which would eliminate the profit for CT purposes.

Pay these salaries under PAYE immediately.
You will pay over this tax on 14th October.

This tax was due on 14 January last, so you should pay interest on the late payment for 9 months. Not sure what the interest rate on late payment of paye is at the moment, I think it's around 1% a month.

Alternatively you can pay CT now for 2011.
Then overpay yourself this year and create a loss for CT purposes in 2012 and you will get the 2011 CT back.

Or alternatively, just pay the CT and build up cash in the company and face the enormous headache of taking it out when you want it.

Brendan

 

[ninak]

Thanks for that Brendan. 2011 a/c's already submitted so will probably up the wages for last months of this year and pay CT on bal. I know I am very lucky to be having the problem of profits at year end rather than losses, especially in this climate.

 

[Paddy199]

The time to plan is in the last month of your financial year end. Stand back and consider salary, pension or rent to reduce profits?

 

[ninak]

Thats what I am doing now Paddy as I am in the last month. It is profits for 2012, this year that I am running down. We made a small loss last year. Will be uping wages and will have to look into pensions.

 

[Brendan Burgess]

The time to plan is in the last month of your financial year end. Stand back and consider salary, pension or rent to reduce profits?

You can certainly plan in December.

But you make your decisions the following June.

If you do your final accounts in June, you can accrue in those accounts the level of salary you require e.g. to eliminate any CT profits or to create a loss to set against the previous year.

You must pay any salaries accrued by the end of June to avoid interest on late payment.

Anyone got the time to do a Key Post on this? Or to update one of the existing ones?

Brendan

 

[MoM]

Pay these salaries under PAYE immediately.
You will pay over this tax on 14th October.

Brenadan, it's the year 2012 we've moved onto mandotory e-filing, the due dates are the 23rd of the month as a result.

Why would they wait until the 14th of October, when interest is accrued on a daily basis?

Alternatively you can pay CT now for 2011.

Again its important to note that the deadline has now passed and thus a 5% surcharge will apply which may affect the decision.

Or alternatively, just pay the CT and build up cash in the company and face the enormous headache of taking it out when you want it.

Brendan

Perhaps you should ask their age with retirement relief in mind?

You can certainly plan in December.

But you make your decisions the following June.

If you do your final accounts in June, you can accrue in those accounts the level of salary you require e.g. to eliminate any CT profits or to create a loss to set against the previous year.

Why would you wait till June - the accounts would be less timely and therefore of less use. I'm surprised to here an accountant advocate this (truly baffling). Why not get them done by March

 

[Brendan Burgess]

Hi MoM

Very useful corrections and questions.

Brenadan, it's the year 2012 we've moved onto mandotory e-filing, the due dates are the 23rd of the month as a result.

Why would they wait until the 14th of October, when interest is accrued on a daily basis?

Hi MoM

You are quite right. Most people make their return close to the deadline, but, of course, there was no need to. He could have paid the Sept return immediately and saved interest. [/quote]

Again its important to note that the deadline has now passed and thus a 5% surcharge will apply which may affect the decision.

Interesting. So if they had missed the deadline, they were due to due to pay a 5% surcharge anyway. Then the interest on late payment of PAYE would be comparatively less punitive.

Perhaps you should ask their age with retirement relief in mind?

As I say in the Key Post, "pay an accountant for tax advice".

MoM - fancy updating the Key Post? Or correcting it? Or questioning it?

Why would you wait till June - the accounts would be less timely and therefore of less use. I'm surprised to here an accountant advocate this (truly baffling). Why not get them done by March

A company should do it's management accounts for Dec in January and should not wait until March. "If you do your final accounts in June". The decision on how much salary to pay for the previous year, can wait until June when the accounts will be more accurate e.g. the directors will have a better view of the value of debtors.

Brendan