I’m trying to establish the difference between codes
7001 - Director’s Salaries and
7002 - Director’s Remuneration
I was thinking that code 7002 is for Director’s emoluments but emoluments is total of gross salary, BIKs and employer’s pension contribution.
I’m somewhat confused !!
Directors salaries is exactly what it says on the tin. A sallaried directors pay.
Director’s remuneration is the amount paid to the directors of a company either in cash or by using the company’s property with approval from the shareholders and board of directors.
It includes salary, bonus, other rewards, etc. The board of directors control the compensation structure of the directors and the shareholders have the authority to sue the directors in case of an overpayment.
It would be very odd for a one person shareholder/director to use renumeration but may be more common in large shareholder type companies.
I’ve been having a discussion with someone and think they should post payments to the lone director, to the Director’s Remuneration code - 7002.
These payments wouldn’t go through PAYE. I personally think these payments would essentially be dividends.
However, what they see is that if they put these payments into 7002 - (instead of code 3102 Dividends Paid) - then these payments appear as an expense and reduce the headline profit figure shown in the P&L statement, thereby reducing their corp tax bill.
They have pointed out what they found online:
The above seems to me that if payments were made, tax free to a director, and recorded as director’s remuneration, then this is very similar to a sole trader taking drawings - which in the case of a sole trader would be added back to their accounting profits to arrive at a tax adjusted trading profit figure. And as such, surely director’s remuneration, if not taxed, would have to be added back to profits to arrive at the correct figure for corp tax?
I’m also not sure that if this were to happen, it would be entirely legal?
It’s an interesting hypothetical discussion that I am having . Any comments appreciated!
It all depends on exactly what those payments relate to.
If its a reimbursement of paid expenses that would be fine I guess. If its a payment which is taxable or liable to nic then that’s fine to, the taxation of it thereafter is a seperate issue.
If its a payment for something which is not an allowable tax deduction then it would be written back when calculating corporation tax.
It comes down to what the figure is actually made up of.
If the payments are essentially drawings, then they are not allowed as a business expense and should be coded to the director’s loan account. These are usually either repayments on initial amounts loaned to the company or advances on future dividends.
If they are for reimbursable expenses, then the expenses should be coded to the correct place in the P&L and the payments used to pay off the expense (either as a supplier or often for small companies again through the director’s loan account).
They should only go to salaries/remuneration if they are actually salaries. The only way this would be the case if there is no PAYE scheme, would be if they are below the threshold for NIC.
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