Company Expenses, directors fees etc

MichaelStrahan

when preparing a set of accounts, if a company pays for personal items for a director how do you operate the PAYE due on it.

is the amount treated as a net amount ( as in net pay in a payroll system) and then grossed back up the same way as say cheques written to directors salaries and then accrued in the PAYE due bal sheet account

or is the amount paid for the personal jsut treated as a gross and put into director remueration

also what is the difference between directors fees and directors remuneration

Bren1609

It depends. It sounds like it's a BIK to me. What was the payment for?

MichaelStrahan

i am just trying to find out generally

say for example

cheques written to directors as salaries for 20000 euro

therefore this means the 20 000 equates to net pay on the payroll and the figure in the accounts is grossed back up to a gross pay and then the PAYE due and PRSI is calculated on this gross pay amount via the payroll system

what if then there are cheques written to personal items for the director e.g. cheques for 10 000 for say a home mortgage

is the paye calculated on this amount of 10 000 or is the 10 000 grossed back up to a gross figure on the payroll and paye calculated on this gross of 10 000

Bren1609

Its grossed back up and PAYE is paid on the gross amount.

Mr. Incognito

Cheques for salary are treated as salary and are run through payroll in the normal manner.

Cheques for personal use are treated as BIK's and the directors are to account for such in their income tax returns.
If the company "loans" the directors monies and the moneys are used to pay a mortgage an interest rate of 4.5% is applied.
For all other uses a rate of 12% is applied. If the loans are unpaid the director is oblidged to account for them as a BIK and if the rates applied are lower account for this difference in rates as a BIK. PAYE should be applied on these BIK's.

MichaelStrahan

What would happen in this situation:

There are cheques written to directors for say 50 000 during the year. The stubs just say the directors name on them

but the director isnt actually on the payroll system and isnt returned on the P35

So when preparing the accounts the cheques for 50 grand are allocated to directors fees or remueration

When accounting for this 50 000 grand on the directors personal income tax return is this 50 000 treated as a gross figure and PAYE calculated on it or is it treated as a net figure and grossed back up as the case would be on a payroll system

i.e is BIK just taxed on the actual 50 grand or on the gross of what 50 grand is net

like is it possible for directors to just take money from a company in cheques rather than be on the payroll and in effect save money on the PAYE amount paid??

MartMax

the director can't avoid paying PAYE and also PRSI (if applies). if is not on P35, then the company is not operating the payroll accordingly - generally PAYE/PRSI should have been filed and paid like other employees. consequently, there'd be penalty and interest to the company like other taxes should a company fail or delay the return and payment.

Marty

Mr. Incognito

Look,

If the company does not operate PAYE on the cheques the director is oblidged personally to account for that PAYE anyway.

There is no way around this. Either the company is going to foot the PAYE or the director is liable for a BIK.

If you do not operate this correctly an are audited expect heavy interest payments.

MichaelStrahan

im sorry for my lack of clarity but here is what i am trying to ask

i know that either the company, or the director personnally, has to account for the tax due, for any cheques written to the director from a company.

So say the director is operated on the payroll on the company and recives cheques totalling 50 000 for the year. Then the correct way to treat this is to treat this amount as a net figure and then PAYE is calculated on the gross of what this 50000 is under normal schedule E tax rules so say roughly the gross of 50000 actually paid by cheque works out at 60 000 then PAYE and PRSI is calculated on this 60 000 gross figure.

so here is my question

if the director isnt on the payroll system then he has to account for this 50 000 received from the company in the form of cheques.

now can the director just account for this 50 000 grand in his personal income tax return as say directors fees, or fees or commmissions received under schedule D tax rules and just pay the tax due on a figure of 50 000

my point is if this is allowed then the director saves the PAYE and PRSI on 10000 euro by accounting for the money on his personal return rather than the company putting him on the payroll

is this in fact allowed or do any payments received from a company to a director have to be operated on the payroll

can directors fess as such be treated as schedule D

thanks for any help

Mr. Incognito

I see what you are getting at and the simple answer is no.

This 50,000 net is renumeration for services. The company is legally oblidged to operate PAYE and PRSI on it and gross it up if you want a net position of 50,000 as it is salary. You can call it anything you want but it is renumeration for an office of employment and should be taxed under schedule E. There is a long list of case law on contract of/ contract for service and Revenue are quite familiar with schemes like this to avoid employers PRSI etc.

In short it's illegal.

poster

Never mind the tax implication, you might have a S31 problem if the company loans money to a director, which is an ODCE reporting matter

K-9

Could this be treated as a Dividend if it's more tax efficient?

Mr. Incognito

No.

Look the point it that you cannot change the nature of the transaction no matter what you call it. It is renumeration for services. Blatantly so.
You could say to the revenue- here is an orange, but it is an apple. when revenue audit you, and they will as they will see a company that is not paying it's directors, they will say, hey wait a minute this is an apple, you should know it's an apple and furthermore the legislation is couched in terms that you knew it was an apple all along and decided to call it an orange. So you owe us X amount plus penalties.

So, full marks for imigination but it doesn't work like that.

LouOB

I thought all directors are independant of co - if he is non-exc director. No deduction as he is not ee - consultant - therefore he should organise his own tax

If exec director amount should be grossed up - as said above & other expenses(loans)
All other items - ring your institution as they will only be too willing to help on the phone, ACCA, IATI, CPA, ACA, CIMA etc

Mr. Incognito

Lou, it hinges on whether it is a contract of/ contract for service. He is not a consultant. He's obviously an employee.

Connie-Kal

Hi

There is also another possibility. Ask the director if he/she is repaying these cheques to the company. If so, it must be done asap in order to avoid the ODCE [as mentioned in previous post]. In the meantime, it is treated as a directors loan, and provided it does not infringe the max limits regarding amounts and timelines, set down in the ODCE factsheets - which are sent regularly to directors.

CK