Taking Low Salary + Expenses from New Ltd Company

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MsGinger

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I am posting this question for a friend who has recently set up his own business.

Is there any reason why a director of a company cannot take a low salary and claim genuine expenses such as mileage/subsistence etc?

He wants to take a low salary until he has built up the business, and to claim mileage and other subsistance allowances which would be wholly & necessarily incurred in the performance of duties related to the business, but his accountant has advised against him taking this route and has asked him to instead pay a higher salary.

By 'low salary' I mean a salary that would not extend into the 41% tax band.
 
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There's nothing wrong with a more modest salary, and then putting in mileage every month
 
MsGinger said:
his accountant has advised against him taking this route and has asked him to instead pay a higher salary.

By 'low salary' I mean a salary that would not extend into the 41% tax band.
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What specific reasons did the accountant give for this advice?
 
Thanks for replies, I don't have any more info at the moment re: the accountant's reasons but I will try to find out and post back later.
 
There is a risk that an unusually low directors salary, combined with high directors expense claims for motor & subsistence expenses, may draw the Revenue's attention to the case and significantly increase the chances of an audit. This risk depends to some extent on the nature of the business. Its impossible to judge whether the accountant's advice is appropriate on the basis of the limited information provided here.
 
Well I am in a similar situation and I pay myself all allowable expenses and a adequate salary. Once the expenses do not far outweigh the salary than I think it should be ok.
My Accountant is happy with my approach, but she did warn that giving myself a really low salary would attract the revenue's attention.


Mik
 
I was advised by my accountant to take a salary below the 41% threshold and I agree with him. As far as I'm concerned, if all the expenses I am claiming are legit business expenses then it's nobody's business but my own how much I pay myself. If I can live off €35,400 per year then I'll do it. Surely there's no law against it?

I understand it could draw attention from Revenue, but if you've nothing to hide then there's no problem.
 
ButtermilkJa said:
I was advised by my accountant to take a salary below the 41% threshold and I agree with him. As far as I'm concerned, if all the expenses I am claiming are legit business expenses then it's nobody's business but my own how much I pay myself. If I can live off €35,400 per year then I'll do it. Surely there's no law against it?

I understand it could draw attention from Revenue, but if you've nothing to hide then there's no problem.
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A salary of €35,400 per year would not normally be regarded as unusually low in this context.
 
ubiquitous said:
A salary of €35,400 per year would not normally be regarded as unusually low in this context.
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Fair enough. But, for example, if I was take a salary of €18k in order to avoid tax/prsi etc. and had legit expenses for €12k to get the same net result as a €35,400 salary, could this ever become an issue. Just curious?
 
ButtermilkJa said:
Fair enough. But, for example, if I was take a salary of €18k in order to avoid tax/prsi etc. and had legit expenses for €12k to get the same net result as a €35,400 salary, could this ever become an issue. Just curious?
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Perhaps. An €18k salary isn't far off minimum wage.
 
I got a little more info. Some of what I posted above was incorrect. The company is a small one, turning over approx €150k a year. It would be mostly a service company, however there would be some purchases, which would be billed to clients.

One director wants to take a salary of approx €35,000, then claim expenses for the 200 or so miles a week, which he will be required to do in the course of his work.

The other director wants to take a salary of approx €52,000 and not do anything with expenses.

The accountant has not advised either way, but my friend said that he was not helpful when he explained what he wanted to do.
 
Not taking expenses, where valid business mileage is incurred, would be mad.
 
Agree with Nige.

Civil service rate for mileage is generally accepted and is around 70c a mile iirc. So 200 miles a week or 800 miles a month is about 560 euro per month in expenses.

The key thing is that expenses like this are 'tax free' and to pay yourself 560 euro net per month would cost you twice that.
 
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Assuming that, the 35k director would have a net income equivalent to a base salary of about 47k or so in real terms.
 
MsGinger said:
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The other director wants to take a salary of approx €52,000 and not do anything with expenses.
...
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boskonay said:
Assuming that, the 35k director would have a net income equivalent to a base salary of about 47k or so in real terms.
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So would it be correct to say that the 2nd director is costing the company money (at least in respect of Employers PRSI) by not making up his c.€50k salary by claiming expenses? Does this make sense?

EDIT: Assuming that both Director's have more or less equal mileage/expenses
 
Hi,

One thing that's not clear here - would there be money 'left over' once the salaries and expenses were paid. If so I believe you cannot carry that forward from year to year without paying capital gains + service tax (can't remember the exact name at the moment). One of the accounting experts here could clarify that for you.
 
pbyrne said:
you cannot carry that forward from year to year without paying capital gains + service tax (can't remember the exact name at the moment).
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Corporation Tax? At 12.5% of retained (ie leftover) profits, this is hardly likely to be a serious issue.
 
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