Distribution of a close company income

C

cableless

Guest
Could someone please point me in the right direction regarding distribution of a close company income, realised somewhat unexpectedly at the end of a tough year.
Is it OK to amend the previous (rather low) salary with a bonus to a tune of 10k and pay the Revenue/Social rates, or are there any pitfalls and penalties in such case?
Alternatively, would dividends be the way to go (my concern about this is supposedly too much paperwork/different treatment)?
Obviously personal tax/Income Levy/PRSI will be higher in both cases, but right now I’m in the dark as regards prudent deductable investments which would reduce CT surcharge (any examples would be greatly appreciated).
 
Without going into too much detail, amendment of the wages by a bonus would be the appropriate way to go IMHO. Payment of dividneds is also a way to go but the bonus options reduces the company's liability to CT for the year in question too, as well as reducing the surcharge.
 
Forget dividends, they are not really tax efficient because they are not allowed as a deduction in calculating profits for tax purposes.

I presume you are talking about a company with the year ended 31 December 2009 and not 2008?

You have two choices which amount to the same thing.

1) You can amend December's salary and pay yourself the extra net pay. Make sure that the p35 return reflects this. In fact, Revenue will accept supplementary p35s as well without penalty within a certain percentage size and time limit.

2) You can accrue directors' fees in the accounts and just pay them in January under January's paye. But you must pay them within 6 months of the year end.

Decide what to do and then show it to your accountant for their opinion.
 
I was in the exact same suitation this year
I decided to pay myself a bonus and reflect this in my P35
The bit of extra cash after christmas is handy!
 
AFAIK, the close company income can be distributed with 18 months of the year-end so it may be more tax efficient from an overall tax perspective (corporation tax + personal income tax) to put the extra salary into a new tax year rather than the old one.

You would have to run the figures to see which scenario works out best for you.
 
Hi all,

The OP will not avoid the close company surcharge by paying themselves additional salary through the payroll as this will not count as a distribution. However, the payment of a dividend will help to reduce/eliminate close company surcharge. This is an important point that they need to consider when evaluating whether to pay bonus or dividend.
 
Thanks everyone for clarifying this. I guess the last salary will go up at least to get the figures in line with the preliminary CT and then I'll have some time to distribute the rest, or perhaps the salary/bonus could go even higher which just leaves a bit overpaid CT.
 
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