A trading company that has been active for many years decides to cease trading. There is more than
£25,000 in the company so they could consider a members’ voluntary liquidation, or they could just keep the company going and take out dividends until they get below the £25,000 limit and go down the informal winding up process. As they have ceased to trade, future salary payments to the shareholder directors would not be allowable for corporation tax purposes, but is there anything to stop the company from paying them anyway?
Arthur Weller replies:
As you have written, if the company has ceased to trade, future salary payments to the shareholder directors would not be allowable for corporation tax purposes. If so, it makes sense to pay a dividend and not a salary because the personal income tax and National Insurance contributions liability is less for a dividend than it is for a salary.