I have seen a few times where directors of companies are not paid the same amount each month. The company does not pay PAYE over each month (in fact company is not registered for PAYE) and all that happens is the director declares his total earnings/drawings for the year in his ITR12 at the end of the year. This amount then corresponds to the "directors emolument" line item in the financial statements. Is this okay to do this?
Unfortunately, this treatment is incorrect. Directors earnings are classified as "salary" and the company needs to be registered for PAYE and deduct and pay tax to SARS on a monthly basis. If the monthly drawings are irregular, then a "deemed monthly salary" should be calculated based on the average of the prior year earnings. (ie prior year earnings / 12)
Nicolesays: 14 January 2016 at 13:38
Thanks I thought so. What if it is the first year of the company and there is no prior year earnings in order to arrive at a "deemed monthly salary"?
TaxTimsays: 14 January 2016 at 15:23
You should use an estimate based on the first few months and can always adjust it up or down if earnings are lower or higher than originally expected.
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