Chris Thorpe considers some of the things to consider when paying salaries.
When taken on by a business, employees obviously need to be paid, the questions are: how much; and can the business get tax relief for payments?
As well as deductions for income tax and employees’ National Insurance contributions (NICs) through PAYE, an employer must also pay NICs and (usually) pension contributions.
Tax deductions
For salaries to be deductible against the employer’s income or corporation tax liability, they must be made ‘wholly and exclusively’ for the purposes of the business. This means they must be commensurate with the employee’s duties and not excessive; any employees who are related or close to the employer might be susceptible to claims by HMRC that an element of the payments were essentially gifts, payments in the nature
