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  • FIRST POST
    • matt10101
    • By matt10101 13th May 18, 9:46 AM
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    matt10101
    Private Limited Company - Low Turnover - Tax/Salary Query
    • #1
    • 13th May 18, 9:46 AM
    Private Limited Company - Low Turnover - Tax/Salary Query 13th May 18 at 9:46 AM
    Hi, hypothetical:- lets say Bobs wife setup a Ltd. company to offer mobile beauty treatment services. She incorporated and had her first client in 07/2017.


    In the months between 07/2017 and 03/2018 she has total sales of £2000, of that about £250 was the cost of supplies, £200 the cost of travel, with the remainder being monies she would like to pay herself.


    Now monthy sales/expenses/travel varied a little month to month, so the amount she would like to pay herself is a variable.


    At no month would this figure be great enough to require her to pay herself via PAYE (checked this on gov uk / PAYE for employers).


    Can she simply list the remaining numeration as salary for the purpose of her coporate tax filing, then pay herself this money, and declare it via self assessment as an employee?


    As all monies involved are such small sums the main concern is not having to give any away to an accountant/PAYE subscription services etc.


    Any advice greatly appreciated!
Page 1
    • antrobus
    • By antrobus 13th May 18, 10:36 AM
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    antrobus
    • #2
    • 13th May 18, 10:36 AM
    • #2
    • 13th May 18, 10:36 AM
    ...

    As all monies involved are such small sums the main concern is not having to give any away to an accountant/PAYE subscription services etc.

    Originally posted by matt10101
    For PAYE see here
    https://www.gov.uk/topic/business-tax/paye

    Basically, PAYE has to be done online. The Ltd co has to register as an employer, you need to download HMRC Basic PAYE (it's free) to do so.

    Personally, I'd have suggested that this was too much faffing about in the circumstances. Being a sole trader is more straightforward.
    • matt10101
    • By matt10101 13th May 18, 10:56 AM
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    matt10101
    • #3
    • 13th May 18, 10:56 AM
    • #3
    • 13th May 18, 10:56 AM
    Are you sure? as on the "PAYE and payrool for employers" link on the page you linked it states:

    You don't need to register for PAYE if none of your employees are paid £116 or more a week, get expenses and benefits, have another job or get a pension. However, you must keep payroll records
    The above all holds true in my hypothetical scenario?

    (sorry i can't link directly as new to the forum)
    • unforeseen
    • By unforeseen 13th May 18, 11:17 AM
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    unforeseen
    • #4
    • 13th May 18, 11:17 AM
    • #4
    • 13th May 18, 11:17 AM
    Are the travel costs paid directly by the company or does she claim them from the company. If the latter then they are expenses in your definition above

    If the former there may be a BIK consideration
    Last edited by unforeseen; 13-05-2018 at 11:20 AM.
    • matt10101
    • By matt10101 13th May 18, 11:42 AM
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    matt10101
    • #5
    • 13th May 18, 11:42 AM
    • #5
    • 13th May 18, 11:42 AM
    Travel costs paid directly by company?

    I should note in my scenario I am trying to work out the most hassle free way to do this properly.
    • unforeseen
    • By unforeseen 13th May 18, 11:50 AM
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    unforeseen
    • #6
    • 13th May 18, 11:50 AM
    • #6
    • 13th May 18, 11:50 AM
    I think the most hassle free way considering the turnover is ditch the Ltd Co and go sole trader.
    • TheCyclingProgrammer
    • By TheCyclingProgrammer 13th May 18, 12:12 PM
    • 3,166 Posts
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    TheCyclingProgrammer
    • #7
    • 13th May 18, 12:12 PM
    • #7
    • 13th May 18, 12:12 PM
    Are the travel costs paid directly by the company or does she claim them from the company. If the latter then they are expenses in your definition above

    If the former there may be a BIK consideration
    Originally posted by unforeseen
    The means of payment of any travel expenses doesn!!!8217;t generally make any difference when it comes to determining if the payments are a BIK. If the travel was legitimate business travel or travel to a temporary workplace then it!!!8217;s fine to do it either way. It would only be a BIK if it didn!!!8217;t meet the rules for business travel

    Because legitimate travel expenses are now covered by exemptions and aren!!!8217;t reported on a P11D anymore I don!!!8217;t see how it would impact the requirement to register for PAYE either.

    That said I completely agree with you that the business turnover seems way to low to be incorporated for tax purposes and OP!!!8217;s wife should seriously consider becoming a sole trader.
    • matt10101
    • By matt10101 13th May 18, 1:09 PM
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    matt10101
    • #8
    • 13th May 18, 1:09 PM
    • #8
    • 13th May 18, 1:09 PM
    In our hypothetical scenario, Bob's wife thinks clients will prefer to see that they are dealing with a company (even if this isn't the best approach to things), and Bob doesn't want to disagree with his wife on this one..

    The incorporation has already been done, and Bob's wife is already registered for self-assessment, so is Bob good to:
    1. forego PAYE?
    2. Submit the corporate tax filing with supplies, travel, and all remaining money from sales as salary, so sales=expenses?
    3. Tell his wife to file self assessment for the salary?
    • Dazed and confused
    • By Dazed and confused 13th May 18, 1:28 PM
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    Dazed and confused
    • #9
    • 13th May 18, 1:28 PM
    • #9
    • 13th May 18, 1:28 PM
    Does Mrs Bob ever employ anyone else?

    Why does Mrs Bob need to suit a tax return (assuming she hasn't already been sent a notice to file one)?

    How is Mrs Bob building any State Pension entitlement?
    • p00hsticks
    • By p00hsticks 13th May 18, 1:29 PM
    • 6,208 Posts
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    p00hsticks
    In our hypothetical scenario, Bob's wife thinks clients will prefer to see that they are dealing with a company (even if this isn't the best approach to things), and Bob doesn't want to disagree with his wife on this one..
    Originally posted by matt10101

    In that case, as Bob's wife obviously thinks she knows better than Bob on this one I'd suggest that Bob justs keeps his nose well clear and let's her get on with it .....
    • 00ec25
    • By 00ec25 13th May 18, 1:42 PM
    • 6,381 Posts
    • 5,894 Thanks
    00ec25
    In our hypothetical scenario, Bob's wife thinks clients will prefer to see that they are dealing with a company (even if this isn't the best approach to things), and Bob doesn't want to disagree with his wife on this one..

    The incorporation has already been done, and Bob's wife is already registered for self-assessment, so is Bob good to:
    1. forego PAYE?
    2. Submit the corporate tax filing with supplies, travel, and all remaining money from sales as salary, so sales=expenses?
    3. Tell his wife to file self assessment for the salary?
    Originally posted by matt10101
    so your wife wants to end up with a company that has zero profit because all available surplus cash has been drawn out as a pay cost leaving nil profit in the company and so no corp tax liability nor any reserves from which to take a dividend instead?

    Presumably you have factored that into your wife's overall assessment of her total taxable income from all sources for her self assessment? No point the company avoiding 19% tax if she ends up with 20% basic rate anyway on employment income.

    It's possible, given i note your careful selection of a t/o that is below the income tax threshold, and a salary level that is below the requirement to file under PAYE. personally however I think you run a risk that if HMRC ever inspected (though why would they for such low t/o) they would say the variability means it cannot be a salary and must be a director loan account "withdrawal", which can only be cleared by declaring a dividend....
    Last edited by 00ec25; 13-05-2018 at 1:52 PM.
    • antrobus
    • By antrobus 13th May 18, 2:02 PM
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    antrobus
    Are you sure? as on the "PAYE and payrool for employers" link on the page you linked it states:

    The above all holds true in my hypothetical scenario?

    (sorry i can't link directly as new to the forum)
    Originally posted by matt10101
    The link would be here;
    https://www.gov.uk/paye-for-employers

    As you quoted;

    You donít need to register for PAYE if none of your employees are paid £116 or more a week, get expenses and benefits, have another job or get a pension

    It's "get expenses and benefits" that should be noted. I was assuming that Bob's hypothetical wife would be a director and getting reimbursement of that £200 worth of travel expenses.

    But Bob's hypothetical wife would be better advised to opt for self-employment.
    • matt10101
    • By matt10101 13th May 18, 5:34 PM
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    matt10101
    so your wife wants to end up with a company that has zero profit because all available surplus cash has been drawn out as a pay cost leaving nil profit in the company and so no corp tax liability nor any reserves from which to take a dividend instead?

    Presumably you have factored that into your wife's overall assessment of her total taxable income from all sources for her self assessment? No point the company avoiding 19% tax if she ends up with 20% basic rate anyway on employment income.

    It's possible, given i note your careful selection of a t/o that is below the income tax threshold, and a salary level that is below the requirement to file under PAYE. personally however I think you run a risk that if HMRC ever inspected (though why would they for such low t/o) they would say the variability means it cannot be a salary and must be a director loan account "withdrawal", which can only be cleared by declaring a dividend....
    Originally posted by 00ec25
    Bob does ideally, but only if this is Legal.

    Bob's wife has no other income.

    Ah, so this is where it might not work, can you not have a variable salary?

    I also since read up on dividends, and it appears there is a personal allowance upto £5K before you are taxed on these, and that they only require a receipt and record of board meeting minutes declaring the dividend?

    So all Bob need do with this option is meet with his wife, record the declaration of a year end dividend, and issue a receipt, then she can add a dividend to her self assessment?
    • 00ec25
    • By 00ec25 13th May 18, 6:47 PM
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    00ec25
    Ah, so this is where it might not work, can you not have a variable salary?
    Originally posted by matt10101
    no, of course you can have variable "salary" - those on commission routinely do so. However, the point is that your plan is illogical because your wife is doing herself out of NI pension credits just so she avoids having to be PAYE because she needs to earn below the lower earnings limit so as to avoid running PAYE - that is illogical.

    So all Bob need do with this option is meet with his wife, record the declaration of a year end dividend, and issue a receipt, then she can add a dividend to her self assessment?
    Originally posted by matt10101
    Get your wife to go and take professional advice on her options - low paid or no pay, makes it even more important that she gets it right, not relies on what you may think you know. You haven't even considered mentioned the ongoing admin costs of this company she ran off and has already set up. If you don't even understand the basis of dividends then this thread is going nowhere as we are not going to teach you everything you need to know in a few lines on a forum. Do you know how to prepare accounts to statutory standards so they can be accepted by Companies House? "Using up" the profits on a variable salary may be the least of her problems if she needs to pay to have accounts done for her.

    Anyway, what legal connection do you have to the company? Why are you involved in meeting with your wife in order to declare a dividend?
    • badmemory
    • By badmemory 13th May 18, 10:38 PM
    • 1,624 Posts
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    badmemory
    I have to say I have known a few mobile hairdressers & not known one that was a ltd co. I suppose some of the "high end" ones may well be but this seems to be going just a little over the top.

    Most people using a mobile hairdresser are just concerned with how good a hairdo they will get & how much they will have to pay for it, if she can take card payments it may be an advantage. The only exception could be if she is doing it in a city & going into peoples offices to do it or maybe working in TV.

    Keep it simple is usually the best way to go.
    • matt10101
    • By matt10101 13th May 18, 10:40 PM
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    matt10101
    no, of course you can have variable "salary" - those on commission routinely do so. However, the point is that your plan is illogical because your wife is doing herself out of NI pension credits just so she avoids having to be PAYE because she needs to earn below the lower earnings limit so as to avoid running PAYE - that is illogical.
    All I'm doing at this point is exploring options for Bob, and reading around the subject. Up until your post just now I had assumed NI contributions were not a factor, as however the salary is categorised, it ends up below the threshold for paying those contributions. You have now alerted me that this might not entirely be the case, so I will be reading more around NI contributions.

    Get your wife to go and take professional advice on her options - low paid or no pay, makes it even more important that she gets it right, not relies on what you may think you know. You haven't even considered mentioned the ongoing admin costs of this company she ran off and has already set up. If you don't even understand the basis of dividends then this thread is going nowhere as we are not going to teach you everything you need to know in a few lines on a forum. Do you know how to prepare accounts to statutory standards so they can be accepted by Companies House? "Using up" the profits on a variable salary may be the least of her problems if she needs to pay to have accounts done for her.

    Anyway, what legal connection do you have to the company? Why are you involved in meeting with your wife in order to declare a dividend?
    Sorry neglected to mention Bob is also a director and minority share holder (hence him being at the meeting), and he will be doing the book keeping.

    I don't understand dividends entirely yet, I've only been at this a few hours, give me a few more and I'll get there!

    No approaches to this apart from paying for professional advice are ruled out yet (sorry I know some people will think it annoying I've said this, but I'd rather learn, and am capable).
    • Dazed and confused
    • By Dazed and confused 13th May 18, 10:54 PM
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    Dazed and confused
    NI contributions may not be a factor in some ways but have you considered what pension income she will have, or possibly not have, in retirement?

    How is she going to get the 35 years (possibly more unless she is very young) needed to get a full State Pension?

    When you read up on dividends you will discover there is no Personal Allowance for dividends. There is a 0% tax rate applicable to dividend income, often referred to as the "Dividend Allowance" however that was reduced to £2,000 from 6 April 2018.

    And any dividend income is still taxable income so could have other impacts, entitlement to Marriage Allowance, High Income Child Benefit Charge liability, reduction in Personal Allowance etc and would have to be declared to Tax Credits.

    These things may not apply in your situation but to many people they are relevant and alter the overall benefit of the so called Dividend Allowance.
    • silvercar
    • By silvercar 16th May 18, 8:32 PM
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    silvercar
    Using hmrc's basic paye tools is very easy to set up and use. Once set up it would take you less than 5 minutes a month to declare the paye earned each month.

    Then Bob's wife could earn upto £702 a month without having to pay any tax or NI. When business improves, Bob's wife would benefit by earning £503 a month and qualify for state pension.
    • tinners93
    • By tinners93 17th May 18, 4:15 PM
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    tinners93
    It doesn't make any sense to set up as a LTD.

    Who's going to create and submit the accounts to companies house? That needs to be a cost factored in.
    Paying someone a salary below £8,424 means they won't get a state pension stamp.
    Paying a dividend will mean that the profits will be subject to CT @ 19% before the dividend is issued.

    Simple way to do it is:

    Set up as self employed. Bob puts together a simple P+L and files the tax return.

    With profits of £1,500 she wont pay any tax or NIC on it and to get a state pension stamp just pay voluntary Class 2 NIC of £153.40.
    • TheCyclingProgrammer
    • By TheCyclingProgrammer 17th May 18, 5:47 PM
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    TheCyclingProgrammer
    Correction to the above post: you only need to pay a salary equal to or above the lower earnings limit (£5876) to get a qualifying year for the state pension.

    You don!!!8217;t need to pay the primary threshold amount although the tax optimum salary in most cases is around this level (I go with £700/month for simplicity) if you don!!!8217;t qualify for the employer!!!8217;s NIC allowance.
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