Lee Sharpe looks at the issue of when bonuses should be paid and payroll obligations accounted for, with an eye to the recent increase in corporation tax rates.
From a tax perspective, there is a tension between wanting to get tax relief for salary payments and having to account to HMRC for PAYE and National Insurance Contributions (NICs). It is quite possible to trigger a PAYE obligation before the director or employee has actually taken the benefit of any net payment. Strictly, NICs may be triggered separately from PAYE.
In terms of overall tax efficiency, rising corporation tax rates and worsening dividend taxation mean that a substantial bonus or salary payment to a shareholder or director may prove more tax-efficient than the dividend alternative. The differences are only small so far, but given the direction in which tax policy has been moving over the last few years, there may be worse to come. And there can be non-tax
