Limited company directors NI

[Scott Jacob]

Hi All,

Just set up as a limited company and have a meeting with my accountant on Tuesday but just trying to work out the NI payed by the employer (me)

In a nut shell I have full time job with amazing hours paying me £36k a year. These hours have enabled me to set up my own limited electrical company. Now to make it easy I want to pay myself £1000 a Month meaning a total salary from both jobs of £48k which is under the 40% tax band.

This is my understanding - as a director I have to pay 20% tax on what I pay myself and 12% NI. I’m also reading I have pay employers NI of 13.8%. Obviously from my main job I go above the NI threshold so I have to pay NI. If the above is true I’d have deductions of 46% meaning I’d have to pay myself roughly £1900 to get my desired £1000. That’s outrageous if true.

Can anyone in a similar position confirm

Thank you

 

[Nigel]

So is your normal job £36k take home?

 

[SJD]

You don't have to pay yourself £1000 in wages from your limited company, you can instead pay some of your remuneration as dividends (divided according to shareholders, e.g. if your partner was a 49% shareholder, they'd get 49% of the dividends). You are still going to pay tax, but can save some NI.

 

[Scott Jacob]

36k before tax

 

[snowhead]

It's not outrageous, it's a fact of life if true.

You wouldn't be paying yourself £1900 to get £1000, you'd be in to higher rate tax, you'd have to pay yourself even more than that.
Once your over the higher rate tax band as an employee you'd have even higher total deductions than 46%.

Stop guessing and wait till you see your accountant.

 

[Scott Jacob]

I’m sure this forum is for advice and general guidance. If I were guessing I wouldn’t use an accountant I’d just wing it. I’m just trying to half understand it before Tuesday so I have an idea of what he’s talking about. Nothing wrong with preparing yourself. But thanks for the useless advice snowhead

 

[Octopus]

I’m sure this forum is for advice and general guidance - on general electrical matters. But thanks for the useless advice snowhead

Odd response and I’ve edited it for your

Maybe try getting free advice from an accountants forum ?

 

[The Ghost]

It is an advice forum for electrical not accountancy matters to be fair.
Edit:As @Murdoch says...

 

[Deleted member 26818]

The less you pay yourself, the less tax, NI and Employer’s NI you would have to pay.
Of course, if you paid your self as a subcontractor, you wouldn’t have to pay Employer’s NI at all.

 

[Nigel]

The less you pay yourself, the less tax, NI and Employer’s NI you would have to pay.
Of course, if you paid your self as a subcontractor, you wouldn’t have to pay Employer’s NI at all.

And would be illegal so not the best of advice.

 

[Deleted member 26818]

And would be illegal so not the best of advice.

It’s not illegal, don’t know why you think that it is.

 

[Nigel]

It’s not illegal, don’t know why you think that it is.

Yes it is. It is illegal for anyone to work as a subcontractor whilst actually working as a PAYE employee.

 

[Deleted member 26818]

Yes it is. It is illegal for anyone to work as a subcontractor whilst actually working as a PAYE employee.

No it’s not.
Lots of people have more than one job.
Just because they are employed and paid PAYE at one job, doesn’t make it illegal for them to work as a subcontractor and be paid CIS at another job.

 

[Nigel]

No it’s not.
Lots of people have more than one job.
Just because they are employed and paid PAYE at one job, doesn’t make it illegal for them to work as a subcontractor and be paid CIS at another job.

Oh my god this is just too painful.

 

[Scott Jacob]

Odd response and I’ve edited it for your

Maybe try getting free advice from an accountants forum ?

Well actually Iv posted it in the buisness section and last time I checked this is buisness related. If you don’t have an answer dont post on it Cheer for your advice to

 

[Deleted member 26818]

From the HMRC website:

Someone is probably self-employed and shouldn’t be paid through PAYE if most of the following are true:

• they’re in business for themselves, are responsible for the success or failure of their business and can make a loss or a profit
• they can decide what work they do and when, where or how to do it
• they can hire someone else to do the work
• they’re responsible for fixing any unsatisfactory work in their own time
• their employer agrees a fixed price for their work - it doesn’t depend on how long the job takes to finish
• they use their own money to buy business assets, cover running costs, and provide tools and equipment for their work
• they can work for more than one client

 

[Nigel]

From the HMRC website:

Someone is probably self-employed and shouldn’t be paid through PAYE if most of the following are true:

• they’re in business for themselves, are responsible for the success or failure of their business and can make a loss or a profit
• they can decide what work they do and when, where or how to do it
• they can hire someone else to do the work
• they’re responsible for fixing any unsatisfactory work in their own time
• their employer agrees a fixed price for their work - it doesn’t depend on how long the job takes to finish
• they use their own money to buy business assets, cover running costs, and provide tools and equipment for their work
• they can work for more than one client

You are really making yourself look silly. I honestly think you are just trolling.

 

[Octopus]

Well actually Iv posted it in the buisness section and last time I checked this is buisness related. If you don’t have an answer dont post on it Cheer for your advice to

Matey - that is a HUGE difference between sparks sharing advice on running a business and giving or taking VERY SPECIFIC advice about HMRC taxes .

So I suggest you listen to your accountant.

 

[Deleted member 26818]

You are really making yourself look silly. I honestly think you are just trolling.

The problem here, is you.
You have no idea what you are talking about.
Whereas I have experience of doing exactly as I have suggested.

When I had my Ltd. Co. I paid myself as a subcontractor.
I used the figures supplied to me on the payment advice from whichever agency I was being paid by.
At the end of the year, I got the PAYE/CIS people to send me a form to offset the tax owed by the tax deducted by the agencies.

Only bugbears being: having to send a form off every month to CIS informing them I was employing myself, and the fact that Corporation tax and Companies House tax years start at the beginning of the month, rather than on the 6th of April.

 

[andyb]

Yes it is. It is illegal for anyone to work as a subcontractor whilst actually working as a PAYE employee.

That can't be correct can it?
I know plenty of people who have a full time paye job plus another job that they do on a self employed basis.
As long as it's declared on their tax return what's the problem?
If true then that makes a lot of firemen law breakers.

 

[Deleted member 26818]

That can't be correct can it?
I know plenty of people who have a full time paye job plus another job that they do on a self employed basis.
As long as it's declared on their tax return what's the problem?
If true then that makes a lot of firemen law breakers.

I think what Essex is trying to say is:
“It’s illegal to be paid as a subcontractor if you’re being treated as an employee.”

 

[andyb]

I think what Essex is trying to say is:
“It’s illegal to be paid as a subcontractor if you’re being treated as an employee.”

And is it?

 

[Octopus]

This thread demonstrates perfectly that sparks can’t give tax advice as we can’t agree (like economists) AND the UK tax system is too open to interpretation

 

[Deleted member 26818]

And is it?

I don’t know whether it’s actually illegal, but if HMRC find out they will take action against the employer to make them pay what’s owed.

 

[The Ghost]

thanks for the useless advice

If you don’t have an answer dont post on it

Charming, sure know how to charm the ladies eh?

 

[Nigel]

That can't be correct can it?
I know plenty of people who have a full time paye job plus another job that they do on a self employed basis.
As long as it's declared on their tax return what's the problem?
If true then that makes a lot of firemen law breakers.

What I am saying is it is illegal for someone to work for a company as a PAYE but get paid as a SE contractor. I am not saying you cannot work for company A as PAYE and for company B as a subbie. I am saying you cannot work for a company as a subbie if you are really working as PAYE but not being oaid as PAYE.

All this is on the HMRC website and is very clear.

 

[Nigel]

I don’t know whether it’s actually illegal, but if HMRC find out they will take action against the employer to make them pay what’s owed.

If you are the company managing director it is crystal clear that you are responsible for the day to day running of the business and as such should be employed PAYE. There is no way a managing director can get away with considering themselves as a casual worker with no responsibility for their work to warrant SE employment. It is a joke to even consider as such.

 

[Nigel]

This thread demonstrates perfectly that sparks can’t give tax advice as we can’t agree (like economists) AND the UK tax system is too open to interpretation

I am gobsmacked that some members on here consider themselves business people. Some lack of basic business knowledge is alarming.

 

[Octopus]

^^ darling with pople is abother key attribute ..... sumething surely licking in mont trades pople too

 

[45140]

You cannot work for Company A in any capacity and then also sub-contract to that Company

You CAN work for Company B as a sub-contractor, you simply declare the income as untaxed income, or taxed income from another source.

The most efficient way to pay yourself as a Director is to either pay just below NI limits and then use the remaining unused tax to offset dividend tax or you pay yourself to the limit of your tax free earnings and then pay tax on everything above.

There is now also a personal dividend tax of 7.5% on all dividends paid above £2000. So for tax purposes its 19% Corporation Tax and from you a further 7.5% until you hit your marginal rate. Ltd Company is becoming a less attractive option unless you have a non-working wife who you can employ.

Remember also that HMRC get very funny indeed about interim dividends and will require a full blown account producing. I believe it is still possible to pay yourself an interest free loan provided that it is paid off inside the tax year, otherwise they expect interest to be paid.

As others have already suggested this really is one for the Accountant.

 

[MJPD29]

Out of interest what is this amazing job you have I could do with it

 

[Deleted member 26818]

When I had my Ltd Co, I registered it for CIS.
I then had to make a monthly return listing all the subcontractors my Ltd Co employed.
If I did not employ anyone that month, I had to make a NIL return.
If I only employed myself, I was still required to submit a return, listing myself as the only subcontractor.

I find it very odd that it would be illegal to employ myself as a subcontractor, yet I was required to list myself on the return.

As for the suggestion that you cannot work in a roll for a company, and then subcontract to that company in another roll, you need to think again.
This again is something that I have personal experience of.

 

[Scott Jacob]

Out of interest what is this amazing job you have I could do with it

Shift spark

 

[45140]

Spinlondon.

A couple of observations

1 : CIS means paying full personal tax including above the marginal rate, so until now dividends would have only attracted 20% and not marginal tax, so you would have paid more Tax through CIS surely ?

2 : HMRC have for several years operated a test that determines if you are genuinely self-employed or not. On the face of what you say you would have failed that test. I believe the Pimlico case now locks this up.

3 : Operating CIS avoids NI and tax from a Ltd Company, and also is at odds with the legal requirement for a Director to work in the interests of the shareholders by maximising revenue.

4 : HMRC is seriously understaffed and uses many staff who simply work from basic training or scripts. It also does not have the resources to chase up smaller amounts or every piece of wrongdoing it identifies. It concentrates on the bigger, easier and cheaper to Prosecute cases. Prosecuting a smaller Company or an individual may cost tens of thousands more than can be recovered and so is seen as being a waste of taxpayers money.

5 : I imagine your accountant considered there was some benefit to you but my accountant this morning was very negative indeed about such an arrangement.

 

[Deleted member 26818]

To start with, I don’t mind paying tax or NI.
I would rathe pay less than more, but I’m not out to fiddle anything.

The majority of my work is through agencies, and agencies won’t pay direct unless you have a Ltd. Co. Some agencies are now refusing to pay Ltd. Co.s direct.

Without a Ltd. Co. you get paid through a payroll company, owned by the agency you’re working for.
The payroll company charges a fee which is now somewhere around £30.

All I want, is to get my money without having to pay someone to get paid.

 

[Nigel]

Spinlondon.

A couple of observations

1 : CIS means paying full personal tax including above the marginal rate, so until now dividends would have only attracted 20% and not marginal tax, so you would have paid more Tax through CIS surely ?

2 : HMRC have for several years operated a test that determines if you are genuinely self-employed or not. On the face of what you say you would have failed that test. I believe the Pimlico case now locks this up.

3 : Operating CIS avoids NI and tax from a Ltd Company, and also is at odds with the legal requirement for a Director to work in the interests of the shareholders by maximising revenue.

4 : HMRC is seriously understaffed and uses many staff who simply work from basic training or scripts. It also does not have the resources to chase up smaller amounts or every piece of wrongdoing it identifies. It concentrates on the bigger, easier and cheaper to Prosecute cases. Prosecuting a smaller Company or an individual may cost tens of thousands more than can be recovered and so is seen as being a waste of taxpayers money.

5 : I imagine your accountant considered there was some benefit to you but my accountant this morning was very negative indeed about such an arrangement.

Well said.

 

[Deleted member 26818]

Well said.

Maybe well said, but there is an inaccuracy, a couple of misconceptions and a lack of relevance.

 

[Nigel]

Maybe well said, but there is an inaccuracy, a couple of misconceptions and a lack of relevance.

No there is not. It is you that is either lying or avoiding the correct tax that you should be paying

 

[Deleted member 26818]

Let me try you with a scenario.
I stop working as an electrician, and go work in a car repair garage.
I’m there a few months and my boss decides to have installed a new 2 post lift.
The new lift needs a supply which the lift installers won’t do, so my boss has to get an electrician in to do it.
He gets 3 quotes, then offers me the work for the cheapest quote.
I agree and when the work is complete, I invoice my boss.

According to you, that would be illegal.
According to me, that would be all fine and above board.

 

[45140]

To start with, I don’t mind paying tax or NI.
I would rathe pay less than more, but I’m not out to fiddle anything.

The majority of my work is through agencies, and agencies won’t pay direct unless you have a Ltd. Co. Some agencies are now refusing to pay Ltd. Co.s direct.

Without a Ltd. Co. you get paid through a payroll company, owned by the agency you’re working for.
The payroll company charges a fee which is now somewhere around £30.

All I want, is to get my money without having to pay someone to get paid.

Not trying to be argumentative or controversial, but if you are aid through a Ltd Company operated by an Agency then you are in effect subject to IR35 and working through an umbrella company, which is an iniquitous system foisted on us by Labour, and tightened down by those poltroons Osborne and Hammond. Now you get none of the benefits of paid employment but pay far greater tax than anyone else.

It has hugely damaged the public sector such as Crossrail, LUL, Network Rail, HS2, etc because these organisations are simply paying the normal salary but under IR35 conditions which means double NI and no access to pension, sick pay or holiday pay that you do not pay for additionally out of your already overtaxed pittance With CrosssRail paying £300 a day for senior engineers, you can see why the Project is now a national embarrassment. All travel and lodging costs are not allowed neither are any out of pocket expenses so by the time you have paid for these the oney being paid is on par with a bus driver, so many senior engineers have retired or work overseas.

I understand that the NHS has a major problem with the massively high number of contract staff it has.

 

[Deleted member 26818]

Not trying to be argumentative or controversial, but if you are aid through a Ltd Company operated by an Agency then you are in effect subject to IR35 and working through an umbrella company, which is an iniquitous system foisted on us by Labour, and tightened down by those poltroons Osborne and Hammond. Now you get none of the benefits of paid employment but pay far greater tax than anyone else.

It has hugely damaged the public sector such as Crossrail, LUL, Network Rail, HS2, etc because these organisations are simply paying the normal salary but under IR35 conditions which means double NI and no access to pension, sick pay or holiday pay that you do not pay for additionally out of your already overtaxed pittance With CrosssRail paying £300 a day for senior engineers, you can see why the Project is now a national embarrassment. All travel and lodging costs are not allowed neither are any out of pocket expenses so by the time you have paid for these the oney being paid is on par with a bus driver, so many senior engineers have retired or work overseas.

I understand that the NHS has a major problem with the massively high number of contract staff it has.

I only work CIS, I refuse any work, where I would be paid umbrella.
You are incorrect about Crossrail paying Umbrella, they pay PAYE (JIB rates), you get sick pay, holiday pay a pension and BUPA.
Getting travel and lodging can be a problem, depending upon how the agency words the contract.
Some agencies say that you are on a fixed contract (with no end date), so no travel or subsistence and that you are employed from the site, so there is no travel even if you’re not on a fixed contract.