Hope someone can help me with this, I'm really confused.
Can a directors of a ltd company claim working tax credits, where they pay themselves a mixture of dividends and salary at the pa. Assuming they are paying themselves at the paye threshold and the balance in dividends
It was my understanding that the Director needs a contract of employment and that the minimum wage regulations take affect, in order to claim WTC.
However an Accountant who I work with, tells me that's not the case?
Can anyone confirm which is true?
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Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
directors can receieve tax credits but only where they are legitimately entitled to such, not because of the way that they manipulate their finances.
The dividend is income exactly the same as their salary, as is interest received and they should be declared as such.
However, I agree with the accountant in that minimum wage regulations do not apply so if the company is doing badly and the director legitimately makes, say £10k for the year, then why should that director be worse off from the system than someone that they employ.
The confussion here really seems to be with the dividend and an assumption that such is not counted in the calculation of WTC. The form however specifically required you to declare how much money you receieved during the year. Not what you earned under PAYE.
Hope that this helps. Not a lot of time tonight but thought that I should respond to this one.
All the best,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Dividends should be declared as investment income. There is also a provision in the legislation that individuals should not depreive themselves of income in order to get more tax credits.
I appreciate that dividends are certainly part of income. My confusion is around the contract of employment / set hours.
I understand that to claim WTC someone who is over 25 must work 30 hours a week and have a contract of employment which would, logically, mean minimum wage rules apply. As you said Shaun, this conflicts with self employed individuals, who avoid such restrictions.
@Nick, I know what you mean about treading carefully. I don't think the individual intends to understate income e.g. by declaring a dividend less than the company can stand, it's more a case that there's insufficient profits,
-- Edited by ADAS on Thursday 9th of June 2011 08:54:04 PM
__________________
Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
The NMW does not apply to company directors unless they also have contracts that make them workers. Company directors are office holders in common law and can do work and be paid for it in that capacity. This is true no matter what sort of work is done or how it is rewarded.
And this link to an answer by the people who run Accounting web (bit out of date as it refers to the now extinct DTI but I think this one is still valid).
In a meeting between the us (the Tax Faculty) and the DTI the DTI told us that if an individual is a director and he does not have an explicit employment contract then he is not subject to the NMW legislation even when he carries out a wide range of activities. This might include, for example, working in the company's shop. Such duties will be work done in his capacity as an office holder (director), not as an employee. Only if a director has an explicit employment contract will he be within NMW.
And this one direct from the horses mouth so to speak.
"If you are a company director you are an office holder in law. You are not entitled to receive the National Minimum Wage for the work you do as an office holder. If you also have an employment contract or workers contract you will be entitled to the National Minimum Wage for the work you do under that contract".
So many quotes and links. Bill will be proud of me
Hope that this clarifies the position,
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Thanks for taking the time over this, it's appreciated, even though I'm still a little confused.
In the last paragraph you've quoted it seems to contradict itself: "If you also have an employment contract or workers contract you will be entitled to the National Minimum Wage for the work you do under that contract"
WTC legislation says when you're over 25, you must have a contract of employment and work more than 30 hours
Edit:I can understand that Directors aren't ordinarily subject to NMR & don't need a contract - but when they make a claim for WTC, that's where I'm confused as it seems to change the situation.... or not ?!?!?!
-- Edited by ADAS on Friday 10th of June 2011 04:35:42 PM
-- Edited by ADAS on Friday 10th of June 2011 04:37:58 PM
__________________
Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
no probs. sure that you would do the same for me if I was scratching my head over something (happens far more than I generally let on!).
that last paragraph was (I think) refering to scenario's where the director also has either other employment beyond their directorship or for situations where they hold a contract of employment under the directorship in which case NMW is applicable. That scenario would tie back to the last sentence of the previous quote.
The key is all down to that contract of employment which directors don't neccessarily have... But may have.
I think that you will probably find that where it's an owner director then there is nothing but where the director is employed into the position they will have which is perhaps what the quotes above were trying to differentiate.
The problem with asking HMRC on things like this is that you can easily get different answers dependant on who you speak with (a bit like us on this side of the fence then (lol)) so you need to almost know the answer and all of the arguments before asking the question which sort of defeats the need to ask it.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Darn it, the question moved whilst I was writing the reply.
I think that the major spanner in the works is where dividends are also thrown into the pot as in this scenario HMRC may say that such is deemed salary.
See this link where HMRC successfully argued from that viewpoint :
http://www.accountingweb.co.uk/item/171789
HOWEVER.... I can find no independant confirmation of this claim published on AW by an anonymous poster so I don't know how much credence should be given to it.
Without the dividend income or a contract of employment, then as NMW is not applicable the salary multiplier can not be shown to reflect the number of hours worked therefore someone could be on (say) £500 a year but still working 35 hours a week provided that such is not merely manipulation of finances to defraud the government.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I think that you will probably find that where it's an owner director then there is nothing but where the director is employed into the position they will have which is perhaps what the quotes above were trying to differentiate.
Ta' Shaun, I think you're right and that's probably the key point.
__________________
Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
