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There is the risk that accounting income could be manipulated through the accrual of shareholder employee payments. We are interested in your submissions on this.

To ensure this does not happen, the calculation of AIM payments will be based on accounting income before shareholder employee salaries are accrued, and deductions for such payments can only be taken for the salary paid within the period that the tax payment relates to. Overpayments of tax that relate to shareholder-employee salary accruals can then be transferred to meet the shareholders’ tax liability at the end of the year. A process around notification to Inland Revenue that a shareholder is receiving transfers from their company will be required to ensure the shareholder does not incur interest charges.

There is the possibility that overpayments of provisional tax resulting from shareholder-employee salary accruals could be transferred to shareholders as tax credits rather than tax payments.

One of the other proposals to improve provisional tax, set out in the Better Business Tax Issues Paper, is for a company to pay tax on behalf of its shareholder-employees when they are paid salaries. The tax paid becomes a tax credit which the shareholder-employee can use against their tax liability. The purpose of this proposal is to remove shareholder-employees from provisional tax obligations altogether.

Whilst these two proposals sit separately at the moment, there is the possibility of reviewing whether they could be integrated. We are interested to hear your thoughts on this. Would you prefer to retain this as an optional add on rather than a compulsory action?

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