Employee is employed part time by Ltd Company and is a relative of the Company Director/Shareholder. Business is struggling but employee agrees to forgo salary until situation improves. PAYE is produced as normal and Company will repay wages owed at some point in the future. (ideally less than a year) There is no NI involved.
Firstly is this permissible and secondly am I right in thinking that the correct treatment will be to journal DR Expenses - Wages CR Creditors Loan and when loan is repaid DR Creditors Loan CR Bank
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
you are basically treating it as though the money was paid to the relative and then they loaned it to the company so everything is payable as if the taxpayer had been paid.
I see no issue with your treatment of this.
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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.
Just revisiting this Shaun. The person to whom this applies is the son of the Director, and lives at home.
Whilst reading up on the New National living wage I spotted that in the above circumstances the employer doesn't have to pay minimum wage, have I got that right?
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
It surprised me to be honest Johnny but from what I can see, if it's a family member living at home, the NMW does not have to be met. What do you think?
http://www.lawdonut.co.uk/law/employment-law/pay-and-pensions/the-minimum-wage-faqs#7 No. 7 on the list.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
Hi John, I've checked out the link. It appears the question is in relation to teenagers. I feel pretty confident in saying anyone who is employed, less a director obviously - if over 25, must be paid the living wage. If I can be proved wrong then I apologise.
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Johnny - Owner of an overly-active keyboard.
A man who can read, yet doesn't, is in no way wiser than a man who can't.
How old is the employee? NMW starts at 21, I believe there is a NWM for 18-21 also. Below that age, coupled with apprentices, the issue can get cloudy. Depends on age of employee. If she / he falls into an age category, I'd roll with that. I do see where you're coming from though, son / daughter helping out etc. Interesting.
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Johnny - Owner of an overly-active keyboard.
A man who can read, yet doesn't, is in no way wiser than a man who can't.
In the following NMW = National Minimum Wage and NLW = National Living Wage.
yes, you are right. NMW does not apply to family members of the employer who are living in the same house.
I am having some difficulty though trying to find any applicable exemptions from National Living wage which replaces NMW for over 25's.
My impression is (please someone correct me if I have made a mistake here) if your clients son is under 25 then NMW rules apply and as they live in the same house the rate payable is non enforcable.
If (as Johnny says) the son is over 25 then NLW rules apply and the fact that they live in the same house is of no consequence. the National Living Wage would need to be paid.
Now, that raises another interesting point.
Currently directors are not subject to NMW.
-- Edited by Shamus on Monday 21st of March 2016 05:00:54 PM
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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.
Found something interesting - in regards to NMW...
HMRC NMWM05140
AND Minimum wage act 54 (3)
Also, playing devils advocate, if living wage is an amendment to the minimum wage act, could it be taken that the same exceptions can be taken?
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Johnny - Owner of an overly-active keyboard.
A man who can read, yet doesn't, is in no way wiser than a man who can't.
I took it to mean a family member, as it mentions the spouse as well. Employee from my OP is over 25, so would ordinarily be eligible for the NLW
In relation to NMW, it starts at 16, increases at 18, and increases again at 21 (and now 25 albeit under a fancy name)
Hi Shaun
My search was originally in relation to when to start paying NLW, as the start date is a Friday and I have a weekly payroll this affects. I reached the conclusion that NLW will start on earnings from the 28th March (paid 8th April) but would welcome comments on that.
I read that the rules for the nlw are the same as those for nmw, but I can't find it now. According to this https://www.livingwage.gov.uk/ nlw is applicable to those who are currently entitled to nmw. I would be grateful if you could redirect me if that's wrong.
Perhaps my understanding is wrong, but I thought that Directors with a contract of employment are already subject to the NMW, for wages paid as an employee? Also AFAIK, tax credits can be paid to Directors who don't have a contract of employment.
This will change when Universal Credit comes in when even Sole Traders will be deemed to be earning minimum/living wage if profits are lower. (New businesses exempt for the first year, but can only be used once)
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
John, would you not apportion that weeks wage to, x hours at NMW, then from the 1st x hours at NLW? Just a thought as it doesn't kick in until the 1st. Just a query, how is the employee managing to get by with no cash? Does he have another job? I assume he can't claim benefits?
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Johnny - Owner of an overly-active keyboard.
A man who can read, yet doesn't, is in no way wiser than a man who can't.
I've removed the last line of my previous post as I am not now convinved that its true that NLW in principle is so different to NMW in its treatment of directors.
I'm trying to look into it but must admit to be fed up to the back teeth of the Government keep simplifying everything so that three years olds can understand it but in doing so taking out all of the detail that we need as they only tell people what they think people need to know! Grrrr.
A very good example I think of debates over subtle differences in wording.
I will continue to try and find something more substantial about the NLW in relation to directors but whilst I know it's in this ere internet thingy somewhere is well hidden!
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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.
So are we of the opinion that NLW is a premium name for the NMW for those aged 25 and over? That the amendment carries the same exceptions / exemptions and caveats as the NMW? All my research, dare I say - leads back to the NWM, both seem to dovetail together. Links to the NLW lead to the NMW. I can not separate them through searches of HMRC. ACAS seem to link them together also.
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Johnny - Owner of an overly-active keyboard.
A man who can read, yet doesn't, is in no way wiser than a man who can't.
I am strongly against Directors paying themselves an artificial wage if there are retained profits and also claiming WTC.
However where the business is not in a position to pay the Director the full amount, then I think it fair that Directors should be able claim WTC.
I came across a link today that I nearly posted, but wanted to see your thoughts first. I may have misunderstood it but what it says to me is that a Director can claim tax credits even if under the NMW, and that numeration for being an office holder is to be treated as employment income for tax credit purposes. It was my understanding anyway, rightly or wrongly. http://www.hmrc.gov.uk/manuals/tcmanual/tcm0118180.htm scroll down to Directors then follow the link shown.
Hi Johnny
The employee in the original OP works 16 hours and receives tax credits. Wages are declared every week and journaled to a loan account until it can be paid.
With regard to NLW, it doesn't necessarily start on the 1st, but the start of the next pay reference following the 1st, so I was wrong anyway. It looks like NLW will start on the 4th April, and be paid on the 15th. I found a better link than the first one I saw which explains it better http://employmentlawclinic.com/articles/pay-reference-period/
And yes, I agree that the nlw comes under the same regs as nmw.
NB Two amendments, one to change divis to retained profit and one to correct the payment date. I must be tired.
-- Edited by Leger on Monday 21st of March 2016 10:56:45 PM
-- Edited by Leger on Monday 21st of March 2016 10:59:39 PM
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
Thanks for that John. Is a office holder director the same as a working director? In legislation? I might be looking too much into it. I mean a office holder can just be there in name, as an oppose to one who actually gets their hands dirty 80 per week.
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Johnny - Owner of an overly-active keyboard.
A man who can read, yet doesn't, is in no way wiser than a man who can't.
John, I don't want this to sound like I'm speaking out of turn here, but, could it be said, or could questions not be asked whereby the employee is working 16 hours just to claim tax credits? I mean it's costing the company in effect nothing. Company is building up expenses to offset against tax. Me personally would be sceptical. I'm sure it's entirely legitimate, yet still. I obviously know neither of the guys involved to make judgement - just a thought
-- Edited by abacus12345 on Monday 21st of March 2016 11:27:36 PM
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Johnny - Owner of an overly-active keyboard.
A man who can read, yet doesn't, is in no way wiser than a man who can't.
Appreciate your concerns Johnny but I'm satisfied this is bona fide.
At present it is costing the Company over £5,500 a year, so I'm not sure how you reach the conclusion it isn't costing the company anything. That money is still liable to be paid once the company is in a position to repay the loan. I don't know at the moment what the intentions are in respect to the wage currently declared, but I'm confident that if there is a reduction, it will not be significant nor without the full consent of the employee.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
John. I'd be thinking, being sceptical - I see an opportunity to claim tax credits - get Dad to employ me for the minimum amount of time needed, ie 16 hours. Employ on paper, not in real effect. No income tax or secondary class 1 to worry about here. On paper company has incurred costs of circa <6k. Loan is repaid, x amount is given back in cash to Dad, list goes on...just a different angle to look at things. Besides, you're are best placed to know his accounts - I was just saying :)
-- Edited by abacus12345 on Tuesday 22nd of March 2016 12:43:58 AM
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Johnny - Owner of an overly-active keyboard.
A man who can read, yet doesn't, is in no way wiser than a man who can't.
Its possible they have confused it with the living wage, which is £7.85 an hour but isn't compulsory. Why they chose to call the new one the National Living Wage is beyond me.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
