Can a Director be Paid Before a Company Starts to Trade?

Special tax rules allow relief for many pre-trading, start-up costs incurred by new companies. Expenditure incurred up to seven years before the company starts to trade are treated as though incurred on the first day of trading.

 It is important to remember that the main consideration for a pre-trading expense is that tax relief is only available if the cost would qualify for tax relief if the company was already trading. Therefore, directors are advised to think very carefully about the amount of salary they chose to take, ensuring that the amount is appropriate for the work done for the business.

 When it comes to tax and NI, the same principles apply for the pre-trading salary as they do when a business is trading. A director’s salary is free of NI as long as it doesn’t exceed the annual earnings threshold of £8,424 while tax will be calculated on the total amount received from this and other sources during the tax year.

 For help and advice on setting up a new company, associated tax and NI matters, please call us on 01524 67111. A member of our senior management team will be happy to arrange a no obligation chat at our offices in Lancaster.