Proprietary Director - Loss of PAYE Tax Credit

deepriver

Hi

Does anyone else have this problem? I am a proprietary director of my own company with one employee = me. Since its a start-up I have a relatively low salary and lose the PAYE credit because I have 15% or more of the company yet 100% of my earnings come through the PAYE system.

Looking into a bit, the PAYE credit is given out as a kind of bonus to people who pay their taxes at source, whereas self employed or directors get a year or two before they declare earnings and pay tax

I think its highly unfair in this scenario. The PAYE helpline said I could write to my local tax inspector and appeal it, be he wasnt aware of any cases where this had been done sucessfully. It also seemed more like a veiled threat to incurr a tax audit!

Does anyone have a similar experience & have appealed or reversed the loss of credit?

Is there any legitimate avenue to lobby for exceptions to be made to this rule, which seems highly unfair in my scenario

cheers

swanvill

Hi, I am afraid there is no grounds for appeal that is just the rules. You should chat with your accountant about the best ways to extract cash/expenses e.g. newspapers from your company.

deepriver

swanvill wrote: »

Hi, I am afraid there is no grounds for appeal that is just the rules. You should chat with your accountant about the best ways to extract cash/expenses e.g. newspapers from your company.

I am the accountant :P

eden_my_ass

Can you video the chat so and post it up here :P

On a more serious note, if you google contractor expenses you'll find some material about deductable expenses, but as for any cunning tricks of the trade they seem to be kept well hidden. The usual one I hear is pension, pension, pension....and I'm close to crumbling on that, a self administered one though where I'll decide how my money is looked after. Good luck

Sonnenblumen

eden_my_ass wrote: »

Can you video the chat so and post it up here :P

Yeah, reminds me of a Woodie Allen sketch in which he was calling for stricter laws on sexual harassment especially in the workplace, for the self employed:p

OP- I thought a company required at least 2 directors, is 1 working director not a sole trader?

Anyways, all directors have reduced rights, but thats life........

swanvill

Deepriver, I'm glad to see you are running a tight ship and don't have too many expensive support staff

On a more serious note, you should make sure you have got business grants from through County Enterprise Boards / FAS and tax relief such as 'seed capital scheme' etc.

Filing your own tax returns are not difficult and can be easily done by anyone who is slightly organised. You should check out Revenue website re' starting your own business guidebook'.

Bren1609

Remeber there's no employers PRSI on Directors salary which can equate to alot more than the PAYE tax credit depending on how much income you're on. You wont get much sympathy from revenue or anyone else on this one. Directors are at a much greater advantage of extracing cash from businesses that ordinary PAYE workers e.g. mileage, subsistence, pension, equity etc.

deepriver

Bren1609 wrote: »

Remeber there's no employers PRSI on Directors salary which can equate to alot more than the PAYE tax credit depending on how much income you're on. .

A director cant pay 'self employed' prsi rate...is that what you mean? Agree with the rest, a director does have more control of rewards

deepriver

Sonnenblumen wrote: »

Yeah, reminds me of a Woodie Allen sketch in which he was calling for stricter laws on sexual harassment especially in the workplace, for the self employed:p

OP- I thought a company required at least 2 directors, is 1 working director not a sole trader?

Anyways, all directors have reduced rights, but thats life........

the other director doesnt draw a wage or any rewards from the ltd, he is more or less a quarter time

I could be devious and give him an 86% share and claim my PAYE credit, but I dont want to go down that road, although I do feel its a bit unjust the loss of a credit, in a low income director scenario.. .I mean the gov are big on growth & job creation from within the economy, yet the tax credit loss flies in the face of that... if I was on a 100k a year I wouldnt care, but obviously I am way off that and would feel the loss of 1.6k

Sonnenblumen

deepriver wrote: »

the other director doesnt draw a wage or any rewards from the ltd, he is more or less a quarter time

I could be devious and give him an 86% share and claim my PAYE credit, but I dont want to go down that road, although I do feel its a bit unjust the loss of a credit, in a low income director scenario.. .I mean the gov are big on growth & job creation from within the economy, yet the tax credit loss flies in the face of that... if I was on a 100k a year I wouldnt care, but obviously I am way off that and would feel the loss of 1.6k

This isn't such a big deal, you'd be better getting on to bigger things. There are other responsibilities many with cost implications for co dir to worry about.
It would be very interesting to see the gov strategy on job creation? I've been through hoops on dealing with semi states trying to figure out what if any supports are available.
They talk the talk, but don't walk the walk.
Good luck anyways.

Hanley

I don't know how viable this is for you personally, but if you can invest a large enough amount into the company in the form of a loan you should be able to have the company repay you the loan in lieu of a salary over however many years you want.

I've seen it done before in a company with 5 directors and they saved a HELL of a lot on PRSI costs. It might go some way towards offsetting the loss of the PAYE credit.

Wreck

Hanley wrote: »

I don't know how viable this is for you personally, but if you can invest a large enough amount into the company in the form of a loan you should be able to have the company repay you the loan in lieu of a salary over however many years you want.

How does this work Hanley? Director invests 50k in company, 50k is repaid over whatever amount of time, where is the profit/benefit for the director?

Hanley

Wreck wrote: »

How does this work Hanley? Director invests 50k in company, 50k is repaid over whatever amount of time, where is the profit/benefit for the director?

Well the case I'm talking about involved a revaluation that was converted to a directors loan (instead of cash being paid straight out). It was a fairly significant amount that provided enough cash to pay their salaries many times over. A straight investment in the company may be different, as it would probably just be seen as a capital investment.

Anyway, for PRSI savings - depending on PRSI class, and salary level, you could be paying up to 13.75% on whatever salary you pay yourself (well that is the company, and you). By repaying the loan you forego your "salary" and as it's not a salary, PRSI is not payable on it.

I'm not sure what the legal stance is if you just do a straight investment tho, and I'm not 100% sure how to set it up, but it can be done, and it is legal. Best thing to do is talk to a tax consultant about it. You'll still have to pay income tax on it like.

Hanley

Wreck wrote: »

How does this work Hanley? Director invests 50k in company, 50k is repaid over whatever amount of time, where is the profit/benefit for the director?

Asset is revalued up by 100,000.

Instead of this gain on reval being paid to the director directly, it's converted into a loan that the director has given the co.

Director decides to take 50k per annum in lieu of his salary.

No PRSI paid on it (as would be the case with a salary), but income tax is still payable.

Sonnenblumen

Hanley wrote: »

Asset is revalued up by 100,000.

Instead of this gain on reval being paid to the director directly, it's converted into a loan that the director has given the co.

Director decides to take 50k per annum in lieu of his salary.

No PRSI paid on it (as would be the case with a salary), but income tax is still payable.

How could an asset value increase be deemed a loan? Is it not a non-trading profit but subject to corporate tax. Really curiious about how an increase in asset value can be repackaged as a Director's loan?

On the otherhand if the money is repayment of an earlier Director's loan how could this money be subject to PRSI or PAYE (assuming the original money was above board etc)?

kayos

Sonnenblumen wrote: »

OP- I thought a company required at least 2 directors, is 1 working director not a sole trader?

A company does require 2 directors but only needs one of these to be a shareholder. The other director does not need to work in the company at all. Well thats going on what my accountant said and its how my company is setup.

deepriver

eden_my_ass wrote: »

Can you video the chat so and post it up here :P

On a more serious note, if you google contractor expenses you'll find some material about deductable expenses, but as for any cunning tricks of the trade they seem to be kept well hidden. The usual one I hear is pension, pension, pension....and I'm close to crumbling on that, a self administered one though where I'll decide how my money is looked after. Good luck

this is interesting

full article at http://www.computerjobs.ie/IT_Jobs/article_191.asp

Expenses

The expenses which contractors are allowed to expense depends entirely on the individual case, but most Accountants would agree that if the Contractor is set up as a Limited Company and assuming that the Registered Office represents one room in the contractor's home comprising "N" bedrooms then the following expenses would be valid:

· 1/Nth Mortgage/Rent as Office Rental (e.g. 1/3 of mortgage for a 3 bedroom home)
· 1/Nth Electricity
· 1/Nth Gas
· 1/Nth Home Insurance
· 1/Nth Phone
· 100% of Mobile Phone
· Motor Expenses (Mileage/Company Car)

deepriver

would expensing a portion of mortgage incur council rates?

swanvill

There is a couple of thing to concern yourself about charging a portion of your mortgage interest (that is acting as an 'office' for you) will your office be liable to capital gains tax if you sell your home and will it affect your mortgage interest relief?

You can always take a chance and you could be fine but just be aware of the capital gains tax liability you could incur.

deepriver

thats interesting.. but the ltd would just be 'renting' the room, so wouldnt it avoid any capital gains tax as it is essentially a renting scenario?

swanvill

Sorry I made the assumption that the house was the principal private residence and was owned by the director/shareholder of company, if this is not the case then please ignore my posts.

It is the owner of the room , which I assumed was a director & shareholder of the company(that is renting the room), that has the capital gains tax (CGT) liability. The potential liability arises as the house is the principal private residence of the owner, thus being exempt from CGT due to 'principal private residence relief' which is lost once a commercial activity is undertaken from the house. You would also have to consider stamp duty implications, if you benefited from first time buyers relief as there could be additional stamp duty to pay with the change in use and sorry to add further but there maybe complications regarding director's transactions and a close company rules in other words its a bit messy and complicated.
If you were selected for a Revenue Audit there is the potential for it to go very wrong. I would re-check your facts with your accountant re CGT, first time buyers Stamp Duty & close company directors transactions.

Last but not least if you rent the room to the company, you will have to pay Income Tax, Income levy (1%) & PRSI on the rental income which will be higher than corporation tax.

I personally would not do 'rent' the room to the company but that is only one opinion, your accountant is right in that it will be fine in 95% of the cases but I'm afraid it has potential to go badly wrong to tune of €'000.