How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Sam Your Own Question
Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13917
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
16196420
Type Your Tax Question Here...
Sam is online now

Hello! I have a question connected with a Limited company.

Resolved Question:

Hello! I have a question connected with a Limited company. I have been working as a self-employed for couple of years. I have opportunity to start a new job but the company require form me to have a limited company. They said they need a business bank account and UTR. I have opened a Limited company in October last year but the company is not yet active(I informed HMRC for that and I know that I have 3 months to informed them once the company is active). I am the director of the company and only shareholder. I received the Company number and UTR number for the company from HMRC. I opened a business bank account on the name of the my limited company. My limited company will earn about £350-400 weekly. From that money I think I have to pay myself a salary as a director( to transfer monthly money-not sure about that...and how much I have to transfer). I am a bit confused from information on HMRC what is the next step. Do I need to do anything else once I start work ? What about that director's salary - can I transfer the whole amount of monthly payment from the business bank account to my personal(which is the best way regarding the tax)? Can I work trough my limited company as director and continue to work as self-employed if the nature of business is the same? What NIN I will pay as director (if I stop my self-employment)? For each financial year I know that I have to do Self- assessment in which I will include my salary as director but not sure what kind of documents I need to do regarding the limited company. Thank you very much.

Submitted: 3 years ago.
Category: Tax
Expert:  Sam replied 3 years ago.
Hi


Thanks for your questions and thank you for asking for me.

First can you tell me a little about this new job and whether they are an agency, and why they need you to be a limited company, as there are all sorts of issues surrounding HMRC employment status legislation, and with the limited company - IR35 legislation, so I would like to establish this position before, then going on to advise on your other questions.

Thanks

Sam
Customer: replied 3 years ago.

Hello Sam!


It is an agency. It is regarding a job in the underground or in a laundry. They said they will pay in money every 2 weeks to the limited company account.


I think I need to register my limited company as a employer in HMRC and then to received a salary form it ( and I think I have to pay NI Class1...). But how I said I am not sure how much this salary to be so in the end I would not pay much tax and NI.


Thank you.

Expert:  Sam replied 3 years ago.
Hi Iva

Thanks for your response and the additional information

Its what I suspected and these agencies are in breach of both employment legislation AND the IR35 legislation when they insist of individuals who are in fact employees - have to be paid under the arrangement of a limited company (also known as an umbrella company)

These are in violation of HMRC legislation, and whilst I do appreciate that you must feel like you are somewhat cornered into accepting the terms with which the agency set - as it makes the difference between getting the job or not - I will urge you to reconsider, as this will prove exceptionally costly.

I have added a link here for your information -
http://www.hmrc.gov.uk/employment-status/faq-agencies.htm


which details the position regarding agency work and the use of limited companies. Many agencies are thinking they can argue the loophole, insisting they are merely your accountant rather then your engager, but the botXXXXX XXXXXne is, were it not for the agency then you would not have this work, as they deal directly with the client for payment (on your behalf)
But whilst this link then states the tax status of a limited company does not need to be determined - the fact is then you are in breach of the iR35 legislation which states, were it not for the fact this was a limited company, would you in fact be an employee. The answer would be yes.

But if you take this forward, my advise is that be aware of the tax consequences which would be visited on you AND the agency.

Now onto your questions - you are best keeping any on going work you do separate - and carry on as you are- so this does not become a bigger problem -
The money you will be paid through the limited company will be salary and you will then just Employer Class 1 as well - and you will also be subject to Corporation tax on this income - if you are having to operate the limited company yourself, rather than the agency operating it for you.
It may well be that you draw all the money out as salary in which case, you will not have any corporation tax bill, but will have accountancy costs for the filing of
1) The corporation tax return and company house tax return
2) Running the payroll
3) Filing you own self assessment return

And I will advise the accountancy costs will more than wipe out any savings this agency promises you, can be made.

If you need any more advise, please do let me know, I am off out to visit with clients but will be back later, and will answer once I return.

Thanks

Sam













Sam and 2 other Tax Specialists are ready to help you
Customer: replied 3 years ago.

Hello Sam!


 


Thank you very much for the prompt answer.


As I know the agency will not operate may Limited company. I have to do it by myself or hire an accountant. It is sound complicated to do it myself..


Could you only tell me if I go with the agency can I keep my self-employment or I have to close it?


When I fill in my self-assessment for 2014 as the company is opened in Oct 2013 (but not active at the moment) do I need to say that I have been a director of limited company or only that I worked as self-employed?


Thank you for your help and advised. I will think about that and decide what to do in future.


 

Expert:  Sam replied 3 years ago.
Hi Iva

Thanks for your response

If you take the agency work then you will have the following tax obligations
1) Limited company - where you will fill in a Corporation tax return and Companies house tax return (for the company profit and expenses)

2) As part of the limited company you will also have to operate PAYE for the salary that you draw from the limited company and this requires a monthly return under the Real time information system. There are tax savings to be made by drawing this out as dividends - but salary can be treated as an actual expense against the money coming in (profits) whereas dividends can only be paid, after the profits have ben subjected to Corporation tax - so you end up being taxed twice on the same income - (Corporation tax as a profit, and the tax suffered on the dividend)

3) Self employment - you currently keep accounts for income and expenditure and complete a self assessment tax return each year on the self employment section of the return but you will also then on this personal return complete an employment page, to declare the salary from the limited company.

So you do not have to cease the self employment - this can continue and for the 2014 self assessment return unless HMRC (and companies house) are treating the limited company as dormant, then you will need to declare the fact you are a director of the limited company on the employment section.
If the company is dormant then you do not need to show this employment (directorship)

I hope that helps you determine what is required of you, how to go about making sure you follow the correct procedures, as well as being aware of the fragile position of operating a limited company for the agency work - when you should be an employee of the agency - so you have all the information regarding the pitfalls of taking this forward.

Let me know if you have any follow up questions, but it would be appreciated if you rate the level of service I have provided, as this ensures I am credited for my time.

Thanks

Sam
Customer: replied 3 years ago.

Hello Sam,


 


Thank you very much! I think that is everything for now.



Best regarards

Expert:  Sam replied 3 years ago.
Hi Iva

You are very welcome

Thanks

Sam