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Close company: directors drawings vs salary

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  • 08-12-2019 12:26pm
    #1
    Calahonda52
    Registered Users Posts: 12,193 ✭✭✭✭


    What am I missing is the following:
    .
    Employer PRSI is going to be 11.05% from Jan 1.
    .
    CT is 12.5%
    ER is 11.05%
    .
    so not much difference between taking drawings or salary, assuming drawings are enough to leave no residual profits in the close company.

    “I can’t pay my staff or mortgage with instagram likes”.



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    #2
    davindub
    Registered Users Posts: 1,447 ✭✭✭davindub


    Calahonda52 wrote: »
    What am I missing is the following:
    .
    Employer PRSI is going to be 11.05% from Jan 1.
    .
    CT is 12.5%
    ER is 11.05%
    .
    so not much difference between taking drawings or salary, assuming drawings are enough to leave no residual profits in the close company.

    There are no drawings in a company, only directors loan/dividends/salary. Look up the rules on this regarding BIK and corporate tax charge (gross up 80%)

    Also there is no ER on payments to prop. directors.

    Also close companies only pay a surcharge on non trading income (rental, etc).


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    #3
    Calahonda52
    Registered Users Posts: 12,193 ✭✭✭✭Calahonda52


    Thanks for this, are the rules in the Close company rules or elsewhere.
    Anyway take an example.
    Company pays
    5000 to Prop. director who then pays PAYE/PRSI/USC etc on it.
    Whats wrong with that from a tax paid point of view?
    .
    Does the same tax not get paid if it were treated as salary in the company, or by way of dividends.
    Thanks as always
    Top rate applying in all cases

    “I can’t pay my staff or mortgage with instagram likes”.



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    #4
    davindub
    Registered Users Posts: 1,447 ✭✭✭davindub


    Calahonda52 wrote: »
    Thanks for this, are the rules in the Close company rules or elsewhere.
    Anyway take an example.
    Company pays
    5000 to Prop. director who then pays PAYE/PRSI/USC etc on it.
    Whats wrong with that from a tax paid point of view?
    .
    Does the same tax not get paid if it were treated as salary in the company, or by way of dividends.
    Thanks as always
    Top rate applying in all cases

    There is nothing wrong with drawing a salary and it is preferred to dividends as dividends are taken from post corp tax earnings from the co, while salary is corp tax deductible.


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    #5
    Calahonda52
    Registered Users Posts: 12,193 ✭✭✭✭Calahonda52


    Thanks, What I did was just transferred out the funds, post surcharge etc, and paid all the taxes on my F11, rather than set up an employee in 2019 for just one shot.
    I am now working as a contractor so from jan 2020 I will do it properly :)

    “I can’t pay my staff or mortgage with instagram likes”.



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    #6
    Calahonda52
    Registered Users Posts: 12,193 ✭✭✭✭Calahonda52


    Just checking my math here, as an employee's in my own company will be paying my salary next week, is this right?
    [No headroom left in my tax credits/20% so tax is 40%]

    40.00% Tax
    04.00% EE PRSI
    11.05% ER PRSI
    04.50% USC (assuming < than 70,044)
    .
    Gives an all in rate of 59.55%

    “I can’t pay my staff or mortgage with instagram likes”.



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    #7
    namenotavailablE
    Registered Users Posts: 59,552 ✭✭✭✭namenotavailablE


    If you're a proprietary director (class S PRSI), no employer PRSI is payable. See page 7 of this booklet (for 2019 but no changes in 2020 for S0/S1).

    http://www.welfare.ie/en/downloads/SW14_19.pdf

    Free Excel net pay calculator- https://taxcalc.eu/monthlyss/Employee%20PAYE%20calculator.xlsm



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    #8
    Sono Topolino
    Registered Users Posts: 455 ✭✭Sono Topolino


    There is no employer PRSI for proprietary directors (Class S). In order to be deemed a proprietary director, you need to control 15% or more of the company's share capital.

    Before taking money out of your company, you should speak to your tax adviser to decide how to structure the transaction in the most tax efficient way.


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    #9
    Stratvs
    Registered Users Posts: 958 ✭✭✭Stratvs


    I may be wrong but did you say in some previous thread that you were >66 in which case PRSI is not an issue.


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    #10
    Calahonda52
    Registered Users Posts: 12,193 ✭✭✭✭Calahonda52


    Thanks, you are both correct about me, I should have said the query was for my partner who is going to join the company as as employee.

    “I can’t pay my staff or mortgage with instagram likes”.



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    #11
    Sono Topolino
    Registered Users Posts: 455 ✭✭Sono Topolino


    If your partner is an employee, then you may legally be obliged to operate payroll and remit any taxes owing to the Revenue. The threshold for setting up PAYE is very low: €8 per week for a full time employee and €2 per week for a part time employee.

    If your partner is not a proprietary director, you have to pay employer PRSI.

    There are a lot of factors to consider here, so I would advise getting professional advice.


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    #12
    Calahonda52
    Registered Users Posts: 12,193 ✭✭✭✭Calahonda52


    Sono Topolino wrote: »
    If your partner is an employee, then you may legally be obliged to operate payroll and remit any taxes owing to the Revenue. The threshold for setting up PAYE is very low: €8 per week for a full time employee and €2 per week for a part time employee.

    If your partner is not a proprietary director, you have to pay employer PRSI.

    There are a lot of factors to consider here, so I would advise getting professional advice.

    Thank you.

    Will be doing payroll for both of us as I am a contractor. The exercise in part was to see what her net pay would be, so the ER is a big piece.
    I have yet to decide if I need to buy a payroll package, for 2 ?

    “I can’t pay my staff or mortgage with instagram likes”.



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    #13
    namenotavailablE
    Registered Users Posts: 59,552 ✭✭✭✭namenotavailablE


    Calahonda52 wrote: »
    I have yet to decide if I need to buy a payroll package, for 2 ?

    For peace of mind it would be worth buying.

    I've a spreadsheet linked in my signature which generally seems accurate but I wouldn't rely on it myself to be 100% accurate in all cases. The real world consequences of making errors can be expensive and well exceed the cost of payroll software.
    Additionally, the software packages tend to be well integrated with PAYE modernisation which saves time.

    Free Excel net pay calculator- https://taxcalc.eu/monthlyss/Employee%20PAYE%20calculator.xlsm



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    #14
    Stratvs
    Registered Users Posts: 958 ✭✭✭Stratvs


    Calahonda52 wrote: »
    I have yet to decide if I need to buy a payroll package, for 2 ?

    https://www.boards.ie/vbulletin/showthread.php?p=111837122

    Following up on that other thread the question is what value do you place on your time per hour to be manually calculating and inputting payroll for 2 into ROS -v- approx €160pa cost of a payroll package, say <€4pw. Time to input 2 EE on payroll package & submit to ROS weekly <10 mins, in fact probably closer to 5 and no having to see if you’ve calculated everything correctly.


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    #15
    Calahonda52
    Registered Users Posts: 12,193 ✭✭✭✭Calahonda52


    Yep, good point!

    “I can’t pay my staff or mortgage with instagram likes”.



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    #16
    davindub
    Registered Users Posts: 1,447 ✭✭✭davindub


    Calahonda52 wrote: »
    Thank you.

    Will be doing payroll for both of us as I am a contractor. The exercise in part was to see what her net pay would be, so the ER is a big piece.
    I have yet to decide if I need to buy a payroll package, for 2 ?

    Ugg, get one just to save filling in the horrendous forms online...


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    #17
    Calahonda52
    Registered Users Posts: 12,193 ✭✭✭✭Calahonda52


    davindub wrote: »
    Ugg, get one just to save filling in the horrendous forms online...

    Yep, am doing to plus an accounts package

    “I can’t pay my staff or mortgage with instagram likes”.



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    #18
    Calahonda52
    Registered Users Posts: 12,193 ✭✭✭✭Calahonda52


    Just a quick one here, my partner is going to be working in my company so any thoughts on a simple way to set up a pension scheme. [ her current employer is paying 8% and she is paying 4% ] I know the rules for the self administered schemes have tighten up a lot so any thoughts where to look.

    https://www.revenue.ie/en/jobs-and-pensions/pensions/tax-relief-for-pension-contributions.aspx

    My read of this that PRSA's are not as as tax effective as the RACs, which I read as an insurance policy, which will pay out an annuity based on life expectancy.

    Just read here

    https://www.citizensinformation.ie/en/money_and_tax/personal_finance/pensions/personal_retirement_savings_accounts.html

    You can get tax relief (based on your age) for the contributions you pay into your PRSA. Since 2003 employers that do not have an occupational pension scheme for their employees must provide access to at least one Standard PRSA. Employees who are not entitled to join a pension scheme within 6 months of service must be given access to a PRSA by their employer. Read more about employers' obligations and PRSAs here (pdf)

    My emphasis

    Does that mean that my company will be have to provide me with a PRSA, despite already being in receipt of a pension.

    “I can’t pay my staff or mortgage with instagram likes”.



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    #19
    Stratvs
    Registered Users Posts: 958 ✭✭✭Stratvs


    Calahonda52 wrote: »
    Employees who are not entitled to join a pension scheme within 6 months of service must be given access to a PRSA by their employer.

    Does that mean that my company will be have to provide me with a PRSA, despite already being in receipt of a pension.

    The important word is access. The employer does not have to contribute anything nor does the employee have to take up the Offer of access to a PRSA. They must just be given the option to make payments to a PRSA. They can decline.

    https://www.pensionsauthority.ie/en/LifeCycle/Joining_a_plan/Employers_obligations_to_provide_access/


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    #20
    Calahonda52
    Registered Users Posts: 12,193 ✭✭✭✭Calahonda52


    My company is going to buy the bike and give it to the employee, so BIK will apply on the lot minus the 1,000.

    Is the BIK on the gross or net, ie after VAT?
    Thanks as aways

    “I can’t pay my staff or mortgage with instagram likes”.



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    #21
    CBear1993
    Banned (with Prison Access) Posts: 1,397 ✭✭✭CBear1993


    Started my own business after Christmas, construction contractor. Just me and my dad as directors. Bought brightpay at €169 for the year or something. Class job, integrates with ROS.

    Only paying my own wage each week but it’s well worth it


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    #22
    CBear1993
    Banned (with Prison Access) Posts: 1,397 ✭✭✭CBear1993


    Calahonda52 wrote: »
    Might be more relevant over here:
    https://www.boards.ie/vbulletin/showthread.php?p=112450850#post112450850

    This thread is about tax

    Yeah the lads above were discussing whether one poster should get a payroll package. Should have replied to one of those, I wasn’t randomly posting.


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