Not drawing wages gone through Payroll

[UKSBD]

I know as a Director I don't have to actually withdrawal my wages and they can go in to Directors loan account.

What about staff wages though, can you do similar?
IE
If someone (who is not a director) is on payroll, can you still carry on Payroll as normal but not actually pay the wages (if they agree to this).

 

[Tom Volpe]

If you aren't actually paying them, is there any benefit to processing the payroll? I'd be inclined to process no more than the national insurance allowance to avoid creating a tax liability?

 

[UKSBD]

Only paying them below their tax allowance.

Just to clarify, members of family

 

[Newchodge]

At the very least you are in breach of Min Wage Regs. It may also be tax evasion as you appear to be claiming to pay an employee without doing so. I would get formal advice!

 

[UKSBD]

When I said not pay, I didn't actually mean not pay, but have something similar to a Directors Loan account.

 

[Tom Volpe]

Good shout from Cindy on getting formal advice. If I'm ever going to do something even slightly out of the ordinary I run it by my accountant. If family members want to work for the business, and then loan their wages back I can't see any issue there. Surely it can be reflected on the balance sheet as a debt?

 

[UKSBD]

and then loan their wages back I can't see any issue there. Surely it can be reflected on the balance sheet as a debt?

That was gong to be my next question.

Can any employee (or anyone for that matter) lend money to a company?

Seems like a simple way to solve temporary cash flow problems, if the employee can afford to not to take their wages for a short period but have them accounted for in something similar to a directors loan account.

 

[NicoJ]

If the employee (or director) is not physically paid within 9 months then the expense would be disallowed in the accounts.

So if the reason is to obtain tax relief (CT or SA) then you have to physically pay them.

If it's a cashflow issue, then yes this would be a legitimate debt on the balance sheet.

 

[UKSBD]

Thanks

If the employee (or director) is not physically paid within 9 months then the expense would be disallowed in the accounts.

What would that actually mean?
Just that the company would get no CT relief on it?
Would it be similar to DL where you would have to pay the CT but would eventually get it back when the loan is repaid?

If it's a cashflow issue, then yes this would be a legitimate debt on the balance sheet.

What would the criteria be for that?
If it was obviously the company was just doing it to relieve temporary cashflow problems would that be all that is required?

Could this be something companies could be looking at during the Coronavirus crisis (provided their employees were willing to help)?

 

[Tom Volpe]

Im assuming (perhaps wrongly, Im not an accountant) that if money changes hands you would remove the CT liability. If they are family members and you can trust them, could you just pay them and then let them lend the money to the business in a separate transaction?

 

[UKSBD]

could you just pay them and then let them lend the money to the business in a separate transaction?

That is what I was wondering too, but would that mean the Company has to have the cash to transfer out (even if it was going to be immediately transferred back).

 

[Tom Volpe]

That is what I was wondering too, but would that mean the Company has to have the cash to transfer out (even if it was going to be immediately transferred back).

Again I'm not an accountant, but if an accountant agrees that paying them and then separately borrowing the money from them reduces CT, I would imagine that the business would need the cash to do that. I believe HMRC can be a bit funny about cash yo-yoing about too, if you are taking the same amount out and getting it back on a regular basis.

 

[NicoJ]

What are you trying to achieve?

Paying the money out and then getting it loaned back would be a sham transaction. Technically this should therefore be disallowed.

The criteria would be the same as for any other loan - a legal obligation to pay and a quantifiable debt to start.

 

[NicoJ]

[QUOTE="UKSBD, post: 2993825, member:

Could this be something companies could be looking at during the Coronavirus crisis (provided their employees were willing to help)?[/QUOTE]

I would say so, yes.

 

[Newchodge]

[QUOTE="UKSBD, post: 2993825, member:

Could this be something companies could be looking at during the Coronavirus crisis (provided their employees were willing to help)?

I would say so, yes.[/QUOTE]
Provided the employees didn't need the money for food!

 

[NicoJ]

I would say so, yes.

Provided the employees didn't need the money for food![/QUOTE]

He did say if the employees agreed to it....

 

[SteveHa]

Personally, I think that GAAR would be triggered, potentially leaving the company with a rather painful headache and punitive penalties.

 

[UKSBD]

I guess the simple solution is for the director to loan to the Company
Pay the wages as normal, then employees lend to the director?

 

[NicoJ]

Personally, I think that GAAR would be triggered, potentially leaving the company with a rather painful headache and punitive penalties.

Why would you think that? I think it depends on why they are planning on this action but I've had companies hold wages for a month or 2 due to cashflow issues.

I guess the simple solution is for the director to loan to the Company
Pay the wages as normal, then employees lend to the director?

I'd say this is a rather more complicated solution personally.

 

[SteveHa]

It looks like a manufactured arrangement with no commercial purpose. If the company can't afford to employ someone without borrowing the salary from them, then they shouldn't employ them.

 

[NicoJ]

It looks like a manufactured arrangement with no commercial purpose. If the company can't afford to employ someone without borrowing the salary from them, then they shouldn't employ them.

I agree - hence why I was trying to find out what the OP was trying to achieve (something that has yet to be answered)

 

[Newchodge]

Reading between the lines I don't think there is an intent to employ, as in require someone to work.

 

[UKSBD]

I agree - hence why I was trying to find out what the OP was trying to achieve (something that has yet to be answered)

It started off as a question related to my circumstances, but after asking it I thought it might also apply to a lot of companies if they have cashflow problems over the coming months, and it might be a solution for some (especially family businesses or businesses where employees are prepared to help)

In my circumstances
I effectively mothballed one of my companies about 2 years ago as I had to go in to hospital.
My daughter took over the daily running of it and has done since then, she doesn't do a great deal, just answering phone, replying to emails, helping with website, general paperwork, etc.

She's on the payroll and earning just over primary threshold
The company is down to just over £2k in reserves and some months makes enough to cover expenses, her wages and make a small profit, other months it doesn't.

If we have 4 or 5 months of no sales her wages will use up the reserves.

I was thinking, just hold back her wages for a few months and by then hopefully business will pick back up

The alternatives are;
Lay her off
Hold back her wages
Get a loan
Me (Director) lend the business money
Shut the business

I thought just holding back her wages for a few months seemed the most obvious, but if that isn't allowed, me (Director) lending money to the business is probably 2nd best option?

 

[justintime]

In your specific circumstances there's no reason why the wages you would have paid to your daughter can't go into a loan account on the balance sheet. Operate the payroll as normal and transfer the nett wages to [daughter] loan account. As Nico J has pointed out, you would have to disallow for tax purposes if the money is not repaid within 9 months.

However, I wouldn't advocate it for employees in general. If it goes t*ts up and can't be repaid the employee loses out.

 

[NicoJ]

I would say it depends on what your future plans are with the company. If you think the business is viable and will pick up again then I would agree with Justin.

If it's unlikely that the business will survive (and you have to be realistic and honest with yourself) then there is little point incurring further debt.

It's a hard choice, I sympathise with you.

 

[UKSBD]

Thanks

It's only one business

It started as a hobby business, made a lot of money for a few years, now just about making enough to pay one wage, but potential to do a lot better if I could be bothered to start it up properly again.

It will always survive, only expenses it has are insurance, accountancy fees, hosting fees, aprox £1,200 a year total, and the company makes more than that in residual income.

Most months it makes enough on top of that to pay wages, if we get 6 months of coronavirus it might not and I took most of the reserves out of the business a couple of years ago.

Thinking about it more, me (as director) lending the business, if it gets to needing it, is probably most sensible option.

My daughter working for the company was only really going to be temporary anyway
She had to give up college to look after the household and run the business whilst I was in hospital/having treatment

 

[NicoJ]

Hope it all works out for you, business and health wise.

 

[UKSBD]

Wow - looks like one problem temporarily solved,

hopefully, going to depend on the details