Director's Remuneration vs Employee Salary

[Metic45]

Hi,

I am a director and sole PAYE employee (via an employment contract to act as a sales manager) of a small UK LTD. I'm submitting a Corporation Tax Return online and just had a couple of questions regarding how to account for the salary I receive. On the form there are two boxes related to compensation:

CP16: Director's Remuneration
and
CP17: Salaries and wages

I've read conflicting information online about which box I should be entering the total salary the company paid me over the year into. Some say that as a Director all remuneration should go into CP16 whereas some say that CP16 is only for compensation received for work done as a Director; if the Director has an employment contract to act in another capacity for the company, their remuneration should be listed in CP17 instead. Does anyone know which is the right box in my case?

Also, should the figure in CP16/17 be the gross salary figure (before tax and employee NI deductions) or the net amount actually received by the employee? If it's the gross figure, should I also include employer NI contributions in there or only employee NI contributions?

Thanks a lot for your help!

 

[Scalloway]

There are conflicting opinions but neither is wrong but in your position I would tend towards Salaries and Wages.

The figures should be shown gross. I have this vague recollection of employers NI needing to be shown separately but unless you come across a box asking for it I would include it in the total for Salaries and Wages.

Do you use accounting software to do the company bookkeeping?

 

[Metic45]

There are conflicting opinions but neither is wrong but in your position I would tend towards Salaries and Wages.

The figures should be shown gross. I have this vague recollection of employers NI needing to be shown separately but unless you come across a box asking for it I would include it in the total for Salaries and Wages.

Do you use accounting software to do the company bookkeeping?

Scalloway, I've seen your replies to a lot of accounting posts on here over the years and if I'm honest, was hoping you'd get a chance to look at my post too Glad you did. Thanks a lot for your help.

Regarding accounting/book-keeping software, I was thinking of getting QuickBooks but this year I just ended up doing things with Excel. I know it's not too professional but the accounts weren't too complicated so it didn't take too long. In the long run though I'll definitely try to get my hands on some software or hire an accountant if things get more complicated.

 

[PCD]

As Scalloway suggests it will probably make no difference whether shown as Directors' remuneration or Salaries and wages and no one is likely to care. I would however normally include directors salaries as Directors' remuneration. It is also could be a mistake to have an employment contract if you are also the sole shareholder as this would bring you under the national minimum wages regulations which would make the low salary high dividends approach used by many difficult. There could however be reasons to pay higher salaries.

 

[Metic45]

As Scalloway suggests it will probably make no difference whether shown as Directors' remuneration or Salaries and wages and no one is likely to care. I would however normally include directors salaries as Directors' remuneration. It is also could be a mistake to have an employment contract if you are also the sole shareholder as this would bring you under the national minimum wages regulations which would make the low salary high dividends approach used by many difficult. There could however be reasons to pay higher salaries.

Thanks a lot for your reply, PCD. You make a very valid point regarding the fact minimum salary requirements start to apply with an employment contract and it's definitely something I considered when deciding about the best way to take money out of the company. In the end however, for other reasons, I went with the higher salary approach over the low salary + high dividends method. If I ever decide to switch, I'll make sure I follow your advice and terminate the employment contract formally. Thanks again.

 

[NicoJ]

It should be directors remuneration. The point is to advocate transparency to the shareholders over how much the directors are receiving.

As you are sole shareholder and director its largely irrelevant as already noted.

 

[Metic45]

It should be directors remuneration. The point is to advocate transparency to the shareholders over how much the directors are receiving.

As you are sole shareholder and director its largely irrelevant as already noted.

Understood. Thanks, Nico!

 

[Stedurham]

Can you use dividends in a more tax efficient way? Ie investing them in something so you dont have to pay tax likee shares? Sorry to jump on thread cant find how to start a new one. Im looking to invest my monthly dividends rather than just pay the tax and sit it in bank account thnaks

 

[Frank the Insurance guy]

Can you use dividends in a more tax efficient way? Ie investing them in something so you dont have to pay tax likee shares? Sorry to jump on thread cant find how to start a new one. Im looking to invest my monthly dividends rather than just pay the tax and sit it in bank account thnaks

You need to talk to a financial advisor and your accountant - as this will be personal to your circumstances.

From what I understand if you take out dividends you pay tax on them, so the only way is to use the cash for something other than dividends - eg. Pay them into a pension directly from the company and there are huge tax advantages (but the money is then tied up until you retire).

 

[Stedurham]

ah super, already putting money in pension, thought there might be something I was missing thanks