There are tough times where tough choices are being made by the businesses. Many directors have been deferring or waiving some or all of their remuneration.
Few things to consider: You have to irretrievably give up your rights to the remuneration prior to the payment date. Employers must remember that the payment of a salary, and therefore the tax point for PAYE etc, is the earlier of,
• When the money is electronically or physically transferred; or
• The point at which the employee becomes entitled to ask for the payment to be made.
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Deferment needs to give a future date at which the deferred salary will be made available for drawing by the directors. Otherwise, the director is in danger of the salary being taxed at the normal point in the wages cycle. And being “available” to be drawn from a loan account with the company.
Director’s Salary is taxable on the first to occur of the following: –
• The point at which earnings are credited to the director’s loan account; or
• If earnings for a period are determined by the end of an accounting period, then the end date of that period; or
• If earnings for an accounting period are not determined until after the end of that period, then the date at which the remuneration is determined.
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Wherever a waiver or deferment is agreed, this should be formally documented. The above assumes that the director is waiving or deferring part of their remuneration for no other recompense; if they are in receipt of some other benefit in exchange for the sacrifice, then special rules will need to be applied.
If this is of interest to you or your business, contact us to find out how we can assist you.
