Below we will discuss the points to be considered when the remuneration of the business owner is reduced.
- Why reduce the remuneration of the business owner?
- What are the tax consequences of reducing the remuneration?
- What are the consequences for your social security contributions as a self-employed?
- What are the consequences for your IPT, guaranteed income insurance, etc.?
- Alternatives to reducing the business owner’s remuneration
1. Why reduce the remuneration of the business owner?
There may be good reasons to reduce the remuneration of the business owner or manager. For example, as a precaution, because the economic prospects of your company are currently not looking good. If your company has liquidity problems in the short term, it may even be appropriate to withdraw the remuneration completely.
2. What are the tax consequences of reducing the remuneration?
Your retention tax and your taxes will of course be lower.
Tax measures as a result of COVID-19
For full details on the Covid-19 retention tax and advance payment support measures, read these articles on Lex4You:
3. What are the consequences for your social security contributions as a self-employed?
If your taxable remuneration decreases, you can also have your social security contributions adjusted. Contact your client advisor at your social insurance fund for more details..
Measures related to social security contributions as a result of COVID-19
Self-employed persons can postpone the payment of their social security contributions for quarters 1, 2 and 3 of 2020 by one year. This does not happen automatically. You must submit an application to your social insurance fund before 15th September 2020. In order to obtain a postponement for quarter 4 of 2020, you must submit an application before 15/12/2020.
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Important: If you postpone payment of your social security contributions until 2021, you cannot deduct those contributions from your 2020 income.
You can find more information about other support measures on our website and on Lex4you.
Do you have any questions? Then we are happy to help you on 078 05 90 18 or you can reach us at firstname.lastname@example.org.
4. What are the consequences for your IPT, guaranteed income insurance, etc.?
Finally, notify your insurer when you reduce your manager’s compensation. For example, the premiums of your contracts can be recalculated. This is important because these premiums are only deductible in proportion to your annual remuneration.
5. Alternatives to reducing the business owner’s remunerationDraw on reserves
In addition to lowering the manager’s remuneration, the company could also keep to the customary remuneration and draw on the reserves built up in recent years. In times of crisis that is a slightly riskier decision which you should discuss with your accountant or advisor.
Additional payment of retention tax at the end of the year
Don’t you have the immediate intention to lower the managers’ remuneration? But is there currently a liquidity problem? Then there is another alternative.
In addition to the deduction of retention tax on wages, business owners must also make quarterly advance payments. If they fail to do so, they risk a tax increase.
Is there currently not enough liquidity to make this advance payment? No worries. At the end of the year, calculate the tax that you owe ultimately and compare it with the retention tax withheld.
Is the retention tax deducted too low? Then, at the end of the year, when there is more liquidity again, the company can deduct the additional retention tax (i.e. the deficit as compared to the final tax).
This additional retention tax paid by your company may be considered as an additional salary
for the income year 2020. No increase due to insufficient advance payments and retention tax will have to be paid if the additional retention tax makes it possible to make up the difference between the tax payable and the retention tax deducted during the year.
Any further questions?