Setting up a limited company by myself or with my bro? Any accountants here??

zygurat789

Starline wrote: »

That may well be your opinion, but I know of no such law requiring such.
(unless they are an employee and falls within the rules of the PAYE scheme)

Keep reading the law or ring HMRC.

zygurat789

Starline wrote: »

Do you have a link to that assertion? :huh:

Because it does not say that in the link you have provided

And you're the one goinig on about semantics... :cool:

Then read it again

Dr_Teeth

zygurat789 wrote: »

http://www.hmrc.gov.uk/payerti/getting-started/paye-basics.htm

HMRC say directors are employees.

Good stuff. The law doesn't.

pleasedelete

CKhalvashi wrote: »

However won't build up NI credits for state benefits/pension etc.

I take £10k + divs (on over £100k p/a) for this exact reason.

As do I - but age dependent many don't.

CKhalvashi

antrobus wrote: »

It's normally the case that directors get paid at least whatever is the NI lower earnings limit for the year in order to qualify for a pension credit; £5,700 a year or whatever the number is these days.

I follow the advice of my accountant, and am posting on that basis.

I am not a tax specialist.

hopon

KILOCHARLIE wrote: »

Many thanks for the replies guys, really good info so far and its a steep learning curve for me so slowly getting my head round it all. Will take the advice on board about my mum but yes any wage she would be paid would be for admin, invoicing etc so surely this would be ok with hmrc? She would be doing this anyway even if she wouldn't be paid at all, although surely if she had shares rather than wages as an employee there wouldn't be any monetary difference for her seeing as in either scenario she would be receiving far less than the 10k tax threshold?

Still grateful for any advice regarding whether its better for both of us to be directors or if its better to have one as a director and one as an employee of the company. As I understand it we can both have 50/50 shares in the company either way (classed a and b respectively should we ever wish to change the ratio) but I am unsure of the other implications. I appreciate the chance of it getting messy if we were to fall out but thats something we both feel very unlikely and something are willing to ignore even if just for the purposes of our query for the time being.

If one of us were an employee of the other with wages of less than 10k does that mean more work for an accountant? Does paye have to be a method then?

Thanks again for any help and again grateful for any further advice.

It's better to pay your mom for work done as an employee rather than via dividend as salary is tax allowable, dividends are paid from retained profits after tax.

If one is an employee rather than a director you would have to pay minimum wage, directors are able to exempt themselves from the nmw legislation.

One company rather than 2 will mean lower accountants fees in theory as there is still only one set of annual accounts and corp tax comps etc but you will have to keep much better records, especially if there comes a time that you are taking out different amounts - one contract finished, differing rates, one of you incurring more expenses for mileage, telephone etc.

The most tax efficient method is both of you as directors, one with A shares, one with B shares, pay a salary of £10k on which there will be a slight amount of employees ni but the employers ni will be cancelled by the employment allowance from hmrc. You then pay 20% corp tax on profits after this salary! your moms salary (for legitimate work done and paid at nmw levels at the very least) the balance can be paid out as dividends at equal or differing levels due to the differing share classes.

Regshoe

zygurat789 wrote: »

It can't be clearer than that.

I'll see your HMRC and raise you one .gov.uk:

https://www.gov.uk/employment-status/office-holder

"Office holders are neither employees nor workers. However, it’s possible for someone to be an office holder and an employee if they have an employment contract with the same company or organisation that meets the criteria for employees"

So either one of these government sources is incorrect or your interpretation of the line on the HMRC site is incorrect, I tend towards the latter explanation.

We could in fact look to another HMRC source (this one backed up with case law):

http://www.hmrc.gov.uk/manuals/esmmanual/esm2502.htm

"It is not necessary to show, as for an employee, that an office holder works under a contract of service" - that indicates there is a distinction.

" But still, if any meaning is to be given to “office” in this legislation, as distinguished from “employment” or “profession” or “trade” or “vocation” …. It must denote a post to which a person can be appointed, which he can vacate and to which a successor can be appointed.’" - Lord Wilberforce (brilliant name), emphasis is mine.

Not for tax purposes, but yet another official government (or at least public body) interpretation backs this up:

http://www.hse.gov.uk/enforce/enforcementguide/investigation/status-specific.htm#P53_8284

"28. A worker who holds an office is traditionally not considered to be an employee because their office continues in existence independently of the particular office holder who, for the time being, holds the position. However, there are exceptions to this approach, for example, police officers are office holders but, by virtue of specific statutory provision23, are treated as employees for the purposes of health and safety legislation."

Try this solicitors page referencing a supreme court decision that an office holder (albeit in this case not an office holder by being a company director) was not an employee:

http://www.hartbrown.co.uk/individuals/article/employee-or-office-holder

It might not matter in terms of the day to day payroll tax treatment, but it has the potential for impact in terms of redundancy payments, minimum wage etc.

Another point regarding what HMRC say - just because they state something it does not make it the law, if it did then HMRC wouldn't keep losing court cases.