Bonus question
Discussion
No, sadly you don't win a holiday in the Maldives for this one - I just want a bit of advice.
I'm contracting via a ltd company which is registered in the UK, however I'm non-resident for tax purposes. The company has a little excess cash in the account which I'd rather not have as profit at the end of the year as it'll attract corporation tax. How best does the company pay me said excess?
1. Increase director's (ie my) monthly salary for the next few months?
2. Pay director a bonus prior to the end of the financial year?
3. Insert your own suggestion here.
Obviously I'll ask the accountant but I'm not in the habit of taking one man's word for some things so I thought maybe the PH business gurus may be able to help.
I'm contracting via a ltd company which is registered in the UK, however I'm non-resident for tax purposes. The company has a little excess cash in the account which I'd rather not have as profit at the end of the year as it'll attract corporation tax. How best does the company pay me said excess?
1. Increase director's (ie my) monthly salary for the next few months?
2. Pay director a bonus prior to the end of the financial year?
3. Insert your own suggestion here.
Obviously I'll ask the accountant but I'm not in the habit of taking one man's word for some things so I thought maybe the PH business gurus may be able to help.
If you are personally non-UK resident for tax purposes, then any income you draw from the company would be subject to the tax regime in the country you ARE resident in rather than the UK.
If that is the case, before offering any tax advice, one would need to know in what country you are a tax resident and the tax rules pertaining in that country.
If that is the case, before offering any tax advice, one would need to know in what country you are a tax resident and the tax rules pertaining in that country.
Cheers Eric - on the ball as always. I'm in Korea, where I'm taxed on income brought into the country. As the company's UK based, and I'm UK based, even though I'm living half way round the world, the bonus/wages/dividends are paid into the UK, which as I see it makes it a UK tax issue. Although I stand to be corrected...?
I wouldn't even begin to advise you on this section as the international aspects of taxation are a whole other specialist area.
Dividends paid to UK tax residents are not subject to any UK tax unless the individual receiving the dividend is a higher rate tax payer.
Dividends are also not subject to NI.
The company does not get any Corporation Tax relief on dividends paid so therefore pays Corporation Tax on the profit BEFORE the dividend is deducted.
Therefore, paying dividends (no matter where the recipient lives) will not help the company reduce its tax bill.
Bonus payments are "normal" wages so for a "normal" UK tax rsident, full Income Tax and NI will be payable on the bonus under the PAYE system. The bonus, being "salary" IS tax deductable by the company so WILL help reduce its Corporation Tax bill.
Obviously, for UK tax residents salary bonuses are usually considered the least tax efficient way of paying "extras" to company directors because of the Income Tax (and more importantly) the NI that needs to be accounted for on the bonus..
However, if you are tax resident overseas, you should not be subject to UK Income Tax or NI so the company may be able to pay a bonus to you, not have to account for any Income Tax or NI on it and STILL get a reduction in its Corporation Tax bill for the bonus amount.
Dividends paid to UK tax residents are not subject to any UK tax unless the individual receiving the dividend is a higher rate tax payer.
Dividends are also not subject to NI.
The company does not get any Corporation Tax relief on dividends paid so therefore pays Corporation Tax on the profit BEFORE the dividend is deducted.
Therefore, paying dividends (no matter where the recipient lives) will not help the company reduce its tax bill.
Bonus payments are "normal" wages so for a "normal" UK tax rsident, full Income Tax and NI will be payable on the bonus under the PAYE system. The bonus, being "salary" IS tax deductable by the company so WILL help reduce its Corporation Tax bill.
Obviously, for UK tax residents salary bonuses are usually considered the least tax efficient way of paying "extras" to company directors because of the Income Tax (and more importantly) the NI that needs to be accounted for on the bonus..
However, if you are tax resident overseas, you should not be subject to UK Income Tax or NI so the company may be able to pay a bonus to you, not have to account for any Income Tax or NI on it and STILL get a reduction in its Corporation Tax bill for the bonus amount.
Edited by Eric Mc on Thursday 24th July 08:45
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