Tax planning - company profits or director's salary?

T McGibney said:
Seems strange but we don't know the context and there may be issues there that we're not aware of.
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Thanks Tommy.

To be honest, I think it's just poor advice from their accountant.

In most cases where this issue has arisen, the advice from the accountants has been either non-existent, poor or incorrect. In this case, it seems that is clearly incorrect. I was just wondering if the principle had changed since I wrote this Key Post 9 years ago.
 
Brendan Burgess said:
He has been told by his accountant that he must pay all his profits as salaries for 2013 in the month of December 2013. The accountant dismissed the idea that the salaries could be accrued and paid later. .
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Begs the question as to what he is paying his accountant for. Surely he must now ask his accountant why he is making this recommendation and why salaries should be paid out by the company. At face value the recommendation does not make sense and as such the accountant should be asked for more detailed information.
 
As Tommy says, there may be issues which justify the advice, although I can't imagine what they might be.

It's also possible that the client has misunderstood the accountant, although that seems unlikely in this case.

It's probably good practice for a client to get the general tax planning strategy in writing, so that they fully understand it and can get a second opinion on it.

Brendan
 
Under the tax rules the situation here is very clear - the PAYE must be paid within 6 months in respect to unpaid remuneration. This provision is contained in section 996 TCA. As we have all done this is normally done via a supplementary P35 (for year end situations).

In the past not only have I seen accountants not being aware of this provision but tax inspectors have also not known.
 
I don't see why you would need a supplementary P35?

If you accrue €10,000 at 31 Dec 2013 and actually pay it in June 2014 as normal, does that not meet the requirements?

Here is the actual wording of Section 996

(2) Where remuneration (in this section referred to as “unpaid remuneration”) which is deductible as an expense in computing the profits or income of a trade or profession for an accounting period or period of account for the purposes of Schedule D is unpaid at a relevant date—

(a) the unpaid remuneration shall be deemed to be emoluments to which this Chapter applies and shall be deemed to have been paid in accordance with subsection (3), and

...



(4) This section shall not apply to unpaid remuneration paid before—

(a) the date of expiry of 6 months after the date (in this subsection referred to as “the deemed date”) on which that remuneration is by virtue of subsection

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Brendan
 
Brendan Burgess said:
I don't see why you would need a supplementary P35?

If you accrue €10,000 at 31 Dec 2013 and actually pay it in June 2014 as normal, does that not meet the requirements?

Brendan
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Section 996 is just referring to the "remuneration" but they would have to submit the P35 by the 15th February. Once they accrue for the salary (if that's what they want to do) and pay the PAYE/PRSI due and include it in the P35 then there shouldn't be an issue. There's no requirement for undistributed profits to be drawn down as salary. The only other explanation is that the accountant is helping them avoid the close company surcharge on undistributed income for professional service companies.
 
Hi bren

1) They have decided they want to accrue €100k in directors' salary and thus not make any profits for CT purposes.

2) They will pay this accrued salary in June 2014.
3) They will do their normal monthly PAYE return in July 2014 for June 2014 and pay over the appropriate PAYE and PRSI

They don't need to show the accrued salary in the P35 for 2013.
 
Correct.

The salary should be actually paid before 30 June.

If it's paid after that, interest is charged on it.

Brendan
 
It is correct that there is no technical requirement to file a supplementary P35. The reason for filing one is purely practical - a P35 (initial or supplementary) allocates earnings and tax deducted to a particular year. For example if your vote fees for the year ending 31 December 2013 and pay the tax on a P30 in June 2014, for example, the fees will relate to the 2013 year of assessment but the attaching tax credit would be paid by June 2014 (and be filed with the P35 for 2014) - you can imagine the difficulty of trying to get the tax office to reallocate the June PAYE/PRSI etc to the 2013 year of assessment. In the olden days when you had employer units that had the technical skill to understand the finer points it may have been possible. I would not like to have to spend a long time dealing with a call centre trying to get credit for PAYE paid 2014 against 2013 income. By filing a supplementary P35 this difficulty does not arise.

From memory the net effect of section 996 is to deem the accrued earnings to accrue evenly over the accounting period that the earnings relate to - i.e. this is the link to the year of assessment. Path of least resistance is my approach on such issues.

Brendan - I'm not sure I agree with post #29 above - the legislative requirement is that the PAYE is required to be paid within six months and not the fees. I don't think the Revenue would particularly mind when the fees are drawn down provided the PAYE etc is paid.
 
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dublin66 said:
Brendan - I'm not sure I agree with post #29 above - the legislative requirement is that the PAYE is required to be paid within six months and not the fees. I don't think the Revenue would particularly mind when the fees are drawn down provided the PAYE etc is paid.
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Hi dublin

(4) This section shall not apply to unpaid remuneration paid before—

(a) the date of expiry of 6 months after the date (in this subsection referred to as “the deemed date”) on which that remuneration is by virtue of subsection
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It refers to remuneration rather than PAYE. Of course, once the remuneration is paid, the PAYE becomes due.
 
I still don't see the need for a supplementary P35 unless the salary was below the annual tax credits for the year.
 
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