In May, we wrote in a factsheet on the options for reducing the salary of a director and major shareholder (DGA) in light of the coronavirus crisis. This is, however, subject to the condition that you review the salary again at the end of 2020.
Temporary reduction
At the start of 2020, it was approved that the director-shareholder’s salary would be temporarily reduced. By the end of 2020 at the latest, arrangements must be put in place to ensure that a salary is paid that complies with the standard salary scheme.
The rationale behind this approval is that the private limited company should not pay payroll tax in advance on salary which the director and major shareholder subsequently did not need to receive. This is because it is generally not possible to reverse salary that has already been paid out.
Related to turnover
The director-major shareholder’s salary may be set at a lower level to the extent that the private limited company has generated lower turnover. To this end, the turnover for 2020 is compared with that for 2019. These turnover figures must not have been influenced by exceptional circumstances, such as incorporation, a strike, a merger, a demerger or exceptional results.
Current account
Furthermore, you should check the director-major shareholder’s current account with the private limited company. To the extent that the director-major shareholder’s current account debt to the company has increased (and/or more dividends have been paid out), the director-major shareholder’s customary remuneration must not be reduced.
PLEASE NOTE!
If the wages still to be paid are included in the payroll tax return for the final reporting period of 2020, the payroll tax due is NOT covered by the exceptional deferral of payment. After all, that scheme expires on 31 December 2020 (We do not rule out the possibility that the scheme may be extended, but there are no plans to do so at present).
Tax for which the payment obligation arises after 31 December 2020 must be paid within the standard time limit. The obligation to pay tax on wages paid in December 2020 arises in January 2021. Payroll tax must then be paid in full by 31 January 2021 at the latest.
If the wages are paid in November, the payroll tax will be subject to special deferral (where applicable). In principle, the private limited company may still apply for special deferral of payment until 1 January 2021.
The tax can then be repaid in 36 equal monthly instalments with effect from 1 July 2021. See our factsheet on the special deferral of payment.