Ltd co. question about paying directors...

Bristolbasedbusiness

Hi all,
I'm not new to the boards but recently found this board and thought I would ask you knowledgeable people for advice!

My friend and I are setting up a consultancy on our own and think it makes sense to open a ltd company due to the income we already earn doing this respectively (but the bosses get a good cut at the moment!)

My question is around our pay...
We ideally would like to be paid for the amount of work we each do (my partner is in the north and I am in the south meaning one may get more work than the other)
I wouldn't mind waiting for dividends quarterly but my partner would like a monthly wage.
How do we arrange this fairly? Can we pay ourselves as employees at an hourly rate?

Thanks in advance for your ideas guys!

BBB

imoneyop

Bristolbasedbusiness wrote: »

Can we pay ourselves as employees at an hourly rate?

You are perfectly free to be employees of the company and pay yourselves an hourly rate for the work that you do - of course that would then mean that the company would have to sort out PAYE and pay Employer's NI. And you and your co-director would be taxed exactly as you would be if you were employed by any other company.

It does rather negate the tax advantages of a Ltd company though. What have your accountants suggested?

Bristolbasedbusiness

Hi imoneyop,

Thanks for the reply.

We haven't spoken to an accountant yet as we are still working out the finer details before we jump and do this on our own.

Is there any other way of doing this to keep us both happy?

imoneyop

Bristolbasedbusiness wrote: »

Is there any other way of doing this to keep us both happy?

Probably not unfortunately. You really seem to be seeing this enterprise as individual incomes rather than a profit making business for the two of you.

You can either take money out as dividends or salary. Dividends have to be divided as per the shareholding, so if you were fully booked for a month and your mate had no work at all then he would be entitled to exactly the same dividend as you (assuming you were 50/50 shareholders).

I think you really need to talk to an accountant and see whether a Ltd co is the best way to go - they might suggest alternatives such as a partnership or LLP being more appropriate.

Bristolbasedbusiness

Thanks for the advice imoneyop,
We will seek more advice before going further.

Brassedoff

Bristolbasedbusiness, when you say "Consultancy", in what way? A lot of people start off by saying they are working as Consultants, but they work for just one client. That changes to dynamic as the HMRC consider that is as evasion. To open a Consultancy, you need to do it in the right sense, so if you can let us know generally, it would help.

As for paying yourselves in the fashion you mention, there is no issue. If your partner can take the first three months as a minimum via PAYE then switch to minimum earnings with the difference as a dividend. That way he will limit his and the company's PAYE/NIC liabilities.

You have already said you can survive by taking a dividend. It just depends on how often so the tax man does not accuse you of the same. I had someone come to me a few years ago who wanted me to do some work for them and the director believed he could take a monthly dividend. So be careful.

There is a great Freelance bit of accountancy software available that would be able to work out payments in the manner you wish. It takes a reasonably complicated payment method and makes it simple. I don't know if I can put a link on here, the mods have already taken my signature off for putting my experience on it.