Student Finance whilst self employed?

bass3k

I am a second year student and am looking into the possibility of starting a company with 2 of my fellow students, we planned to do work for free as then it would not effect our student finance or our tax credits etc, it would mean we were free to eb and flow our workload depending on uni commitments and we could use our company name to get regular customers who required our services over long periods of time.

I was talking to my brother in law about the fact we were planning to just work for free and he said why don't we just register the company under a company name that we have yet to choose and take no money out of it as a wages etc meaning our own income would still be 0 like it is right now but the company itself would be earning and ticking over without anything coming out of it except actual company expenses.

Is this something we can do without effecting our student finances/tax credits as we are currently ok doing free work for the experience, but if we had the chance of setting up our own company that we could start earning money from once uni had finished (thus becoming our actual jobs) that would be superb.

I think I've covered our situations, mine is that my wife works, I am a student, we get childcare/adult dependency grant/child dependency grant/maintenance and student loan/ plus course fee's. I think that my other 2 partners are in the same boat though 1 may receive housing benefit as his partner is also a student.

Any advice is greatly appreciated and once I know what I am clear or unclear to do in my situation I'd be more than happy to offer services to those that help (its mainly IT/Web based work) in return for your advice!!

olly300

A limited company is a separate legal entity from the people that run it.

So being a company director and/or a sharehold of the company doesn't mean you have to pay yourself out of the company funds. It's up to you whether you use any money in the company to provide yourself with any income. Company directors are exempt from the National Minimum wage requirements.

Having having 2 other company directors can cause problems further down the line as two of you could overrule the other one i.e. if 2 people want an income and the other doesn't then you all will have an income.

Plus company directors have legal requirements that they must comply with. For example you need to ensure the company makes its corporate tax returns on time and to do that you will need to pay an accountant to get it right otherwise you will be fined. This fine you have to pay out of your own money not the company's money.

More information about Company Directors legal requirements and running a limited company can be found on the Companies House Website. (Just google it but it's normally down for maintenance late at night over the weekends).

If you want to set one up then you should go and talk to a couple of accountants. To see what the process is. Generally accountants can set them up free if you agree to use their services for a couple of years. However as you aren't planning on paying yourself out of the company you can use a company formation agent as this is cheaper. However as I stated you still need to a pay an accountant to do your corporation tax returns.

In addition all company directors are legally required to file a self assessment return.

BTW a company director and a shareholder are completely different. A company director runs the company there as a shareholder get money from the company's profits.

bass3k

Thank you! That advise looks great, if anyone else has anything to add I appreciate it. I will talk to the others about this, I imagine we can overcome any kind of situations where 2 might overrule one by maybe putting in contracts that say all 3 have to agree on things like that? Who knows, it is very early days at the moment so we have a lot of work to do.

Very intrigued to hear that the company would be separate to us etc so we would be able to carry on as normal until the time comes that we can rely on it (or doesn't come of course) that's quite exciting! I understood we would have to run by a few accountants etc of course, that is another thing we need to sort out.

Really pleased with your help, it all sounds like an interesting idea.

olly300

bass3k wrote: »

Thank you! That advise looks great, if anyone else has anything to add I appreciate it. I will talk to the others about this, I imagine we can overcome any kind of situations where 2 might overrule one by maybe putting in contracts that say all 3 have to agree on things like that? Who knows, it is very early days at the moment so we have a lot of work to do.

One reason why companies and partnerships get dissolved and put in administration is disputes between directors. Hence why companies tend to have a managing director.

bass3k wrote: »

Very intrigued to hear that the company would be separate to us etc

Oddly lots of people don't realise that a limited company is different from the people that run it.

Having a limited company means you aren't liable for the company's debts however in certain cases you as a director can be fined or banned from being a director. Plus banks tend to want directors personal property as collateral for loans.

The Business link web pages are a good source of basic information. If you are not in England then Wales and Scotland have similar business information webpages.

bass3k wrote: »

so we would be able to carry on as normal until the time comes that we can rely on it (or doesn't come of course) that's quite exciting! I understood we would have to run by a few accountants etc of course, that is another thing we need to sort out.

Run it by real physical accountants.

There are UK business forums (just google for them but check they are UK based) where you can get basic business accountancy advice from. HMRC produce loads of documents as well some easy to understand others not so.

Accountants will charge you for detailed advice so if you have questions you should research alternative answers, then ask your accountant which solution is best and most importantly legal.

samwsmith1

I know this isn't going to help in answering your question, but here are the different legal forms of business structure:
http://tutor2u.net/business/finance/legal_structure_intro.htm
And more on limited companies here:
http://tutor2u.net/business/gcse/organisation_limited_companies.htm

bass3k

Thanks again Olly, and thank you Sam as your posts make interesting reading, its something I need to take an interest in so when it comes to it we make the right choices if we can.

CLAPTON

it would seem to me, that in your circumstances it makes no sense to set up a limited company.

if you will have no income why set up any legal entity at all; just do the work for free and gain the experience?

donquine

CLAPTON wrote: »

it would seem to me, that in your circumstances it makes no sense to set up a limited company.

if you will have no income why set up any legal entity at all; just do the work for free and gain the experience?

The way I read it, was that the OP and his two mates intended to charge clients for their services, but not extract this cash from the limited company until graduating. So less "working for free" and more "working for deferred income".

bass3k

donquine wrote: »

The way I read it, was that the OP and his two mates intended to charge clients for their services, but not extract this cash from the limited company until graduating. So less "working for free" and more "working for deferred income".

Thats pretty much right, its a bit of both at the moment though. Right now the plan is just to work for free and rake in the experience for post university. The client we are currently working for has said that he could get us frequent work for other companies if we were interested and that some of it could even be well paid work. The trouble we have is that we'd have to decline paid work because of the fact we receive student finance and tax credits that are all income based so taking payments will mean everything lowers or becomes difficult to administrate and we have to find more paid work to keep the ball rolling and not jepordise our finances. None of us can afford to stay on our courses unless we maintain the level of funding we get currently, all 3 of us would rather (in an ideal world) be working with these clients and doing as many jobs as we can so that we could even afford to forgo the income based finance we get from the government but right now there is far to much risk in setting it up if we fail.

It seems like setting up a company might be the wrong way to go about it from the sounds of it, my brother in law originally suggested it but he neglected to mention the extra parts involved in it. I think we're looking at either biting the bullet or sticking to the unpaid work until we leave uni which isn't the end of the world I guess as it could open quite a few doors for us.

donquine

bass3k wrote: »

It seems like setting up a company might be the wrong way to go about it from the sounds of it, my brother in law originally suggested it but he neglected to mention the extra parts involved in it. I think we're looking at either biting the bullet or sticking to the unpaid work until we leave uni which isn't the end of the world I guess as it could open quite a few doors for us.

I admit I have little experience of benefits and I don't know if the government would look beyond the lack of income and at the cash locked up in a limited company, however all that aside, you could leave cash there now and dividend it out later, avoiding NIC and possibly not even paying any tax at all, depending on your circumstances at the time.

My gut feeling is that it's your income and your savings that are considered when you're assessed for benefits etc, rather than your investments, but you need a definitive answer from someone other than me.

A limited company however is not something to start up lightly, due to the cost of running it and the administrative burden. If you achieve a healthy level of profits, it's possible the company could happily pay for all the operating costs, but I'm not convinced that a bunch of students would have the time to successfully complete their degree, work on the side and deal with the legal responsibilities of being company directors. At least one of you have children - therefore I'm sure you also have other demands on your time on top of what I've already mentioned.

If all three of you are doing the same course, I imagine there will be a block of time each year when none of you want to deal with any of the paperwork. I wouldn't say the option is dead in the water necessarily, but I do think it requires a lot of serious thought, some more research and some financial projections to determine whether it's worth it. May be, may not.

The experience will be great, but if running a little business empire comes at the expense of a First Class degree or a 2:1, then your priorities may well be wrong.

CLAPTON

bass3k wrote: »

Thats pretty much right, its a bit of both at the moment though. Right now the plan is just to work for free and rake in the experience for post university. The client we are currently working for has said that he could get us frequent work for other companies if we were interested and that some of it could even be well paid work. The trouble we have is that we'd have to decline paid work because of the fact we receive student finance and tax credits that are all income based so taking payments will mean everything lowers or becomes difficult to administrate and we have to find more paid work to keep the ball rolling and not jepordise our finances. None of us can afford to stay on our courses unless we maintain the level of funding we get currently, all 3 of us would rather (in an ideal world) be working with these clients and doing as many jobs as we can so that we could even afford to forgo the income based finance we get from the government but right now there is far to much risk in setting it up if we fail.

It seems like setting up a company might be the wrong way to go about it from the sounds of it, my brother in law originally suggested it but he neglected to mention the extra parts involved in it. I think we're looking at either biting the bullet or sticking to the unpaid work until we leave uni which isn't the end of the world I guess as it could open quite a few doors for us.

I know little of tax credits but don't you have to be working to obtain tax credits?