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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5020
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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My company has been trading years. I am the sole employee

Customer Question

My company has been trading for 8 years. I am the sole employee and shareholder of the company.
My mother has been the company secretary for 8 years. She does a small amount of bookeeping and the annual return.
I haven't paid her any remuneration for this work over the 8 years the company has been trading. I have realised I could have been paying her a nominal salary for the last 8 years eg. 5k per annum.
Therefore, I am wondering can I back pay her 5k a year for the last 8 years, so 40k in one lump sum?
I realise this will affect her personal tax position. But I'm really just asking how legitimate such a back payment will be via the company will be. ie. will HMRC see it as excessive for one years pay for a company secretary or will they accept it is 8 years of backpay.
Thank you for your help.
Submitted: 2 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 2 years ago.

Hello and welcome to the site. Thank you for your question.

I am sure you would agree that HMRC are likely to quiz the amount albeit it covers 8 years of back pay. As you have a constructive explanation to justify the charge in one year, there should not be a big issue.

You could consider a salary as suggested and award her a bonus to reflect past performance making an annual remuneration of £10k. You will have to operate the payments through PAYE. I am aware this does mean that payments are over a longer period.

Furthermore, a salary of £40k would also attract employers national insurance which is a cost worth avoiding if possible.

It is legitimate to make the payment but it would be regarded as earnings in the current tax year.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 2 years ago.

Thank you for the reply.

Just to clarify the 10k amount you mention, would be made up of 5k salary and 5k bonus?

What is the maximum bonus that I could award? Could I go over 5k?

The reason I ask is that I would prefer to not make the payment in 4 x 10k multiples as I am looking to shut the company down in the next 1-2 years. So If I made the payments in 10k multiples I would not reach 40k within the time the company will still be live.

Thank you for your help

Expert:  taxadvisor.uk replied 2 years ago.
Thank you for your reply.
There is no set figure for bonus.
My rationale was you should also try to minimise the employers NI contribution costs. At present government credits you with up to £2k of Employer NI. When it is your own company every bit helps. There is no reason why you can't pay any higher figure ..you could pay £20k per annum.
I hope this is helpful.
Expert:  taxadvisor.uk replied 2 years ago.

Hello Rich

I notice you have viewed my last response to your question about payment to cover back pay and bonus (JACUSTOMER-aeuqtxl0- Last Viewed on 13/05/2015 at 14:05).

Just checking to see if you have any issues relating to your question that I may not have addressed.

Please let me know if I can be of further assistance.

If you are happy and there are no more issues I will appreciate if you would kindly rate/accept the service I provided to ensure I get credited for it.