Director's salaries and minimum wage on RTI

jamesm96

Hi all,

I just wonder what other practices are planning on doing with Directors' salaries (where the Directors are paid the NI Secondary Threshold), but work full time? Obviously if the Director works 35 hours per week for £7,488 per year, it's nowhere near the NMW.

Our view is that the Directors contracts will have minimum working hours of, say, 20 hours per week with no guarantee of overtime pay. Any time spent over and above this is therefore entirely of the Director's own free-will and shouldn't give us any problems with NMW requirements.

But, as I say, I just wonder what other people's viewpoints are?

Cheers,

Mike.

peaman

I was told that the NMW does not apply to directors, I don't know if there is any truth to this and I haven't looked into it.

I have just accepted it!

Am I wrong?

Rozzi Rainbow

I too had been wondering about this, and had also heard NMW does not apply to directors, but wondered if HMRC would soon change their mind about that if we reported directors working 35/40 hours per week and only being paid a low salary.

A quick check here on the NMW guidelines confirmed it does indeed not apply to directors:

https://www.gov.uk/national-minimum-wage/who-gets-the-minimum-wage

Allan

Directors are office holders and not subjected to the NMW for the work they do as an office holder.

IF they have a contract of employment, the work covered by that will have to be at, at least the NMW.

burg

Agree NMW does not apply to directors unless they have a contract of employment.
However they will need a contract of employment if they want to claim tax credits.

deanshepherd

burg wrote: »

However they will need a contract of employment if they want to claim tax credits.

Interesting. Never heard this before and I know a number of my directors claim tax credits (as did I a few years back).

Any links?


P.S. Tim Palmer was involved in the RTI pilot scheme and had it confirmed that option D 'other' can be used for directors hours. Apparently HMRC are not interested in the hours directors work, just regular employees.

burg

deanshepherd wrote: »

Interesting. Never heard this before and I know a number of my directors claim tax credits (as did I a few years back).

Any links?

I'll have to find where I found this.

Hang on and I'll try and post something Dean

burg

Dean

Here is the link - http://www.accountingweb.co.uk/topic/tax/working-tax-credit-entitlement-rules

Under 'Directors and Tax Credits' skip to paragraph 4 which states about the amendment to the Tax Credit Entitlement Rules and removing the term 'office holders' and therefore automatically removing the entitlement for directors who did not have a separate contract of employment.

I've not seen any further changes since. Would appreciate your views if you think the article is wrong or indeed out of date.

As the article also states though there is a degree of contradiction between the tax rules and tax credit rules.

deanshepherd

I think the article is incorrect.

Although 'office-holder' was removed from the main body of the legislation, in SI 2003/701 the following paragraph was added to the interpretation section:

"In these Regulations as they apply to an office a reference to being employed includes a reference to being the holder of an office."

I think the bigger issue is probably the question of notional income and whether Directors are perceived to have provided their services at an undervalue.

Bluewednesday

deanshepherd wrote: »

Interesting


P.S. Tim Palmer was involved in the RTI pilot scheme and had it confirmed that option D 'other' can be used for directors hours. Apparently HMRC are not interested in the hours directors work, just regular employees.

This was what I was told by the HMRC at a recent RTI course too.

I have seen conflicting opinions about whether directors being paid under the LEL should be reported, originally we were told that any pay has to be reported but recently we have been told not to but can't seem to find the definitive answer

jamesm96

Haven't been able to check back here since posting this. Quite a discussion has ensued! But, agh!... I knew Directors were outside of NMW too! Completely forgot. Thanks everyone.

@RozziRainbow: I wouldn't be worried about HMRC reacting to Director's being paid so little salary for their time; they're under no illusion that it's a widespread practice. I don't think the RTI reporting will tell them anything they didn't already know.