Avoiding employer's PRSI on director pension

[StephenJ]

I've started paying my wife, a director of my limited company with a 10% shareholding, a salary. But I've found that I need to pay employer's PRSI on this. Is there a way to avoid this? My wife also has PAYE income.

I did some analysis and I understand that if I change our shareholding to 50/50, she will then pay class S PRSI and thus no employer's PRSI is due. However, this has a few knock-on effects including losing her PAYE tax credit (and gaining the self-employed tax credit), she'd need to file a form 11 once per year and lose some entitlements to state benefits.

Is there an easier way to avoid paying employer's PRSI? And if not then is there any important point I'm missing from my analysis above?

 

[RedOnion]

Is there an easier way to avoid paying employer's PRSI? And if not then is there any important point I'm missing from my analysis above

Anything less than 50% is determined on a case by case basis, so there's no straight forward way to avoid. Unless your circumstances are genuine, it's unlikely that you can avoid.

she'd need to file a form 11 once per year

Are you absolutely certain she's not already a chargeable person? Are you jointly assessed?

You need to discuss all this, and your objectives with your accountant. If your accountant can't answer these questions, you need a new accountant.

 

[StephenJ]

Thanks RedOnion, we're separately assessed so I don't thinks she's a chargeable person. My accountant is clueless about these types of things, I definitely need a new one. Are recommendations allowed on this forum?

 

[dublin67]

Why don't you pay her directors fees and not a salary. Director's fee are liable to Class S contributions. In practical terms the difference for you will be the size of fees/salary that the company is paying your wife. €5K may be fine for directors fees but €20K may be a bit excessive - not sure there are any hard and fast rules on it.

 

[StephenJ]

To follow up on this. I received advice from my accountants several months ago that Revenue clarified to one of their tax partners that the following was true:
1. Employer's PRSI is not payable on salaries paid to directors who pay class S PRSI
2. Any spouse where the husband owned the rest of the company would qualify for class S (instead of applying the 50% rule mentioned above), hence no employers PRSI would be payable.
3. The spouse can still hold less than 15% of the company (i.e. not be a proprietary director) and pay class S per the above rules.