I have a client who has a private limited company, his wife and he are the only directors of it, no other employees. His wife gave birth last month, now could you kindly help me to advise him correctly , he wants to know what is best to do regarding paying her and what would be better for the company as well, for tax purposes. She was nominated as a director in March this year, and her Salary for 2016/2017 year was 8052£ per year.
Hi. Was this not set up previously? I was under the impression that, before baby is born, things already need to be in motion. Is there a contract in place between the director wife and company?
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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.
There's no reason why he can't continue to pay her £8052 for her duties as a Director, as presumably she will continue to do things in her role as a Director. That is tax deductible under Corporation Tax.
If the question is related to maternity pay and leave, then the question is, was she an employee? If an employee she should have a written contract of employment and meet the criteria here
Thank you both for you replies,
I have just taken over his accounts. They do not have any employment contract. I have thought the same to continue paying her £8052 as it is tax deductible.
It appears in this lady's case that unless she was already an employee of the company before she became a Director then she is not entitled to SMP as she would not have been paid anything during the qualifying period. However you mention a 2016/17 salary. When was that actually paid and what was the ladies EDD (Estimated Due Date)?
Directors
Companies incorporated after 1 October 2009
There are new regulations for companies incorporated after 1 October 2009. They provide new Articles of Association for these companies and will:
apply by default if other Articles are not adopted
allow its directors to determine a directors remuneration
Directors can decide what remuneration to pay and when. There is no need for a resolution of the companies shareholders at its Annual General Meeting (AGM). In such cases payment of directors fees will be regarded as earnings for the purpose of entitlement to SMP on the date payment was made and the SMP calculator used in the normal way.
Companies incorporated before 1 October 2009
The previous standard Articles, which apply in default, continue to apply. An ordinary resolution is required to determine directors remuneration. The method of calculating directors remuneration by an annual figure (after an ordinary resolution has been passed by shareholders) will apply to these companies. Any payments made in anticipation of the annual vote cant be taken into account for calculating AWE.
Paid contractually
If the director is contractually paid a regular salary - their AWE are calculated like any other employee.
Paid by a determination of the directors (not a formal vote)
Calculate the AWE by adding together the monies paid and any other payments of earnings, but use the date monies were paid instead of the date of the shareholders resolution at the AGM to determine the total earnings during the relevant period.
Paid both contractually and by formal vote
A director who is paid contractually may also be paid a bonus or fees by a formal vote. You must still calculate their AWE like any other employee, but you should only include the monies voted by formal vote if the date of the vote falls in the relevant period.
Paid only by a formal vote
If the director is paid only by a formal vote calculate their AWE in the usual way, substituting the dates of the formal votes in place of the normal paydays. A formal vote usually takes place at the companys AGM and is agreed in the company minutes.
A formal vote usually takes place at the companys AGM and is agreed in the company minutes.
Monies drawn in anticipation of a formal vote
Some directors may regularly draw money from the business in anticipation of a formal vote. Do not include this money when working out the directors AWE, even if NICs were deducted at the time they were paid.
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