Directors Remuneration Options

Question 1

Retain Earnings with company {Advantages}

Answer 1

Boost working capital
19% CT - lower than IT
Increases financial base - makes company more attractive to lenders

Question 2

Pay a dividend {Advantages}

Answer 2

Paid without ER NI
Paid without EE NI
Can be paid to people with lower tax rates

Question 3

Pay bonus or fee {Advantages}

Answer 3

Some flexibility on when paid - within accounting period or within 9 months
Enables tax planning - determine tax year when paid
Allows utilisation of tax thresholds - Primary earnings threshold
Increase relevant earnings for pension contributions
Allowable deduction for the company

Question 4

Pay a company pension contribution {Advantages}

Answer 4

Fully allowable against CT although relief may be spread
No NI
Within a SSAS company may be able to borrow against value of pension fund

Question 5

Retain earnings with company {Drawbacks}

Answer 5

Profits remain company’s money and not that of the directors

Taxed twice - first to CT and then eventually in the nads of the recipient

Question 6

Pay a dividend {Drawbacks}

Answer 6

Taxed twice - as above
Dependent on profits
Not earnings for pension purposes
May restrict benefits such as DIS
May impact ability to borrow
Have to be paid to all shareholders and directors may not want this
Profits not retained in the company so cannot use in the business

Question 7

Pay bonus or fees {Drawbacks}

Answer 7

Subject to ER NI
Subject to EE NI
Profits not retained in the company so cannot use in the business

Question 8

Pay company pension contribution {Drawbacks}

Answer 8

Tax relief restricted/tax charge where AA/MPAA exceeded
May not be accessible for many years
Profits not retained in the company so cannot use in the business