If you are a Company Owner or Director you might be wondering, if your salary is tax deductible. One of the many benefits of your company paying your salary, is the amount will usually be a tax deductible expense and reduce the company’s Corporation Tax. The following information contains questions and answers to solve common problems for businesses.
We have created several posts surrounding the small salary, big dividends tax planning technique including potential dangers, non-tax factors and National Insurance for further reading here.
How do I attract Corporation Tax Relief?
The amount paid to yourself must be justified by the work completed for the business and your level of responsibility.
This may not be a problem for Company Owners who work full-time and pay themselves a small salary. However, it may well be a problem for those that pay salaries to other family members who work on a part-time basis.
If you decide to pay yourself a large one-off bonus, this will also prove difficult for you to attract Corporation Tax relief.
If you decide to pay a large one-off bonus payment to the company directors or shareholders, it may be necessary to justify the payment in the Board of Directors meeting minutes and so it is best to record the approval of any bonus in the minutes of a Shareholders’ meeting too.
How is my salary deemed Tax Deductible?
Here are five factors that may determine whether your salary is tax deductible:
- Number of hours worked in the business
- Your legal obligations and responsibilities (e.g. directors’ duties)
- Amount of pay received by the company’s other employees
- Amount of pay received by employees at other companies performing similar roles
- Company’s performance and ability to pay salaries/bonuses
For more information, we provide a Business Consultation to fulfill all your business needs.