Paying yourself through a Ltd as a subby

Discuss Paying yourself through a Ltd as a subby in the Business Related area at ElectriciansForums.net

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Shane Mullan

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When starting out subbying, a few people suggested to me that I should start out as ltd. As I would already be paying agencies/umbrellas £20 a week to receive my wages (£1040~ a year) it would work out cheaper to go Ltd and pay an accountant. Subsequently I had a meeting with an accountant and incorporated my company in March 2018, went self-employed and got my UTRs/CIS registered. My accountant tells me that I should just be paying myself from the company as self-employed – that I can just withdraw money from my business bank account whenever I want as “who is there to question me?” (his words).

I have been paying my accountant every month and very rarely has he ever been forthcoming with offering any advice.

With the end of my financial year approaching I am starting to worry about my company tax return. Up until this point I have just been withdrawing cash from my Ltd bank account but I have read a few places mentioning monthly EPS returns? I have not done any of this?

I suppose at this point I am just confused about the whole thing and not getting anywhere with my accountant. I have already paid him a years’ worth of accounting so it would be very hard for me to go and pay another accountant just for end of year return, it would effectively be paying twice.

TL;DR - I wonder how other subbys are paying themselves from their ltd company?
 
Why are you subbing to your own Ltd. Co. why not just be employed by it as the sole director?
I'm a one person Ltd. Co. I don't have a UTR nor am I involved with CIS.
I am employed PAYE by the company, I get a payslip monthly from the accountant, because they do the wages for me as part of the service.
The wages are then transferred from the company account into my personal account.
However, as you say, I can take money from the company at any time, I just need to be able to justify that to HMRC.
 
There are a number of ways to pay yourself from a Ltd. Co.
One is where you pay yourself a minimum wage, pay tax, NI and employer’s NI on that wage then pay what’s left over as a dividend.
Another method is to pay yourself below the threshold for tax and NI then pay the rest as a dividend. (Not sure how legal this is, as it would probably work out less than the minimum wage.)
Another method is to not pay yourself at all, and just pay yourself a dividend. (Again not sure how legal this would be, as it would likely be seen as tax avoidance.)
Finally, you can pay yourself as a subby.
On paper you pay yourself the gross amount paid by the agency, deduct the 20% CIS tax, then at the end of the year offset the CIS tax deducted by the agency against the tax you recorded on paper as being deducted from you by your Ltd. Co.
All of the methods involve you supplying a set of accounts to Companies House, submitting a return for Corporation tax, another return for PAYE/CIS and filing a Self Assessment.
Also your Ltd Co. is required to notify monthly how many employees it has.
 
Are you supplying materials at cost to yourself or just labour, if you are supplying labour only you could fall under IR35 rules.

IR35 and dividends
If you enter into contracts to provide professional services to clients via your limited company (typically as an IT contractor), you may be aware of a piece of tax legislation called IR35.

If your contract work is caught by IR35, you will have to draw down the bulk of your company’s income in the form of a ‘deemed salary’, after allowing for a fixed 5% ‘administration allowance’ for the costs of running the company. Please note that if your contract is with a public sector organisation, you can no longer claim this allowance.

You will have to pay full PAYE income tax and NICs on this deemed salary – at the same rates paid by permanent employees.

So, if you do work as a limited company contractor, you should make IR35 compliance a key priority, as the financial consequences should you be caught are significant.
 
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chris day said:
If you are operating as a sub contractor supplying labour only for most of the jobs HMRC will bolt you to the fence post if you are caught.
Check with an accountant first
Click to expand...
Don’t quite understand what that means?
The majority of my work is supplying labour only through agencies, just the same as all the other sparks who work via agencies.
Not noticed the HMRC getting the spanners out yet.
 
spinlondon said:
There are a number of ways to pay yourself from a Ltd. Co.
One is where you pay yourself a minimum wage, pay tax, NI and employer’s NI on that wage then pay what’s left over as a dividend.
Another method is to pay yourself below the threshold for tax and NI then pay the rest as a dividend. (Not sure how legal this is, as it would probably work out less than the minimum wage.)
Another method is to not pay yourself at all, and just pay yourself a dividend. (Again not sure how legal this would be, as it would likely be seen as tax avoidance.)
Finally, you can pay yourself as a subby.
On paper you pay yourself the gross amount paid by the agency, deduct the 20% CIS tax, then at the end of the year offset the CIS tax deducted by the agency against the tax you recorded on paper as being deducted from you by your Ltd. Co.
All of the methods involve you supplying a set of accounts to Companies House, submitting a return for Corporation tax, another return for PAYE/CIS and filing a Self Assessment.
Also your Ltd Co. is required to notify monthly how many employees it has.
Click to expand...
Remember tax avoidance is perfectly legal, it’s tax evasion that isn’t. We all avoid paying tax when we can, if you pay into a pension the tax relief you get from HMRC is a form of tax avoidance for instance.
 
netblindpaul said:
Why are you subbing to your own Ltd. Co. why not just be employed by it as the sole director?
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That's how I thought it should be, just pay myself a salary of £8,424 and the rest in dividends, and honestly I am much preferring this option as it seems the most 'legit'.

spinlondon said:
Also your Ltd Co. is required to notify monthly how many employees it has.
Click to expand...
I suppose this is something I might be getting a fine for.. I did say to my accountant about EPS but he told me not to worry as it "doesn't apply"

Chris, in regards to IR35 I am pretty clued up - it has affected many of my friends in the healthcare industry. When subbying I have noticed a few agencies try to trick you into signing documents declaring yourself within IR35 etc, but most have been happy to accept alternative confirmation of arrangements. It is definitely someone everyone should be aware of
 
Limited companies have to work in real time, monthly declarations to hmrc ie people wages including deductions etc.

You can have your salary, then corporation tax is paid on company profits then you can take £2,000.00 in dividends then anymore and your taxed on them on a personal level.

Your company pays corporation tax then at a later date you receive a personal tax bill for any dividends.

Also hmrc are looking at people who supply labour only being the only employee of the company they are a director for. Hiding behind a limited company to avoid NI and more Tax. Basically falling foul of the IR35.
 
I would wholeheartedly second the motion to flirt your accountant,based on the fact he is not acting like one...

If you are happy to pay him for doing nothing,then it is not an onerous stretch,to give HMRC extra monies....at least they give us the occasional,cringy advert...:rolleyes:
 
spinlondon said:
Don’t quite understand what that means?
The majority of my work is supplying labour only through agencies, just the same as all the other sparks who work via agencies.
Not noticed the HMRC getting the spanners out yet.
Click to expand...

Basically it is illegal to pay a sub-contractor in a way that would amount to PAYE in normal circumstances. I know the construction sector does this a lot but it is illegal.

A labour only sub-contractor that is not supplying materials and would not go back and put correct work that was wrong from their own pocket should be employed on a PAYE basis. If not, that employmeny is unlawful.
 
It sounds like you are paying yourself regular dividends as a company director not as a subby, don't see why some are saying that your accountant is wrong, as long as you are making a profit you can pay yourself dividends, you will just end up having income tax liability (minus allowances) on any dividend received over £2k at the end of the year. This is for your accountant to sort out at year end. Dividends do not however count as business costs when considering corporation tax. You should be keeping relevant dividend vouchers for all payments. All sounds fine to me.
 
Ltd Co employs you to do work. You invoice them as self-employed. Seems simple, but you have to do your own personal tax return, pay tax on that, and any money you get as "dividends" is taxed as well. Why bother...unless you are earning a LOT of money. You get the money, you pay the tax, one way or another. Of course, if you can live on the personal income and not take dividends, them you can roll that into pension...Why give yourself the hassle, especially for monthly and quarterly returns and VAT etc. They will hunt you down...
 
pirate said:
Ltd Co employs you to do work. You invoice them as self-employed. Seems simple, but you have to do your own personal tax return, pay tax on that, and any money you get as "dividends" is taxed as well. Why bother...unless you are earning a LOT of money. You get the money, you pay the tax, one way or another. Of course, if you can live on the personal income and not take dividends, them you can roll that into pension...Why give yourself the hassle, especially for monthly and quarterly returns and VAT etc. They will hunt you down...
Click to expand...
OP doesn’t want to pay the £20-25 per week payroll fee.
 
essex said:
Payment on account is for Company Directors PAYE.
Click to expand...
We are not PAYE.
We are equal company directors we do 95% sub contract labour where 20% is taken by CIS the jobs we do we keep back 20% for corparation tax
our corparation tax bill is offset against expencises etc so far we have overpaid and get a BACS payment back.
our personal "wages" is made up of dirctors fee and dividends.
After our personal allowance we now pay personal tax on dividends
This for us is now have to be paid now on account so the HMRC have the money before we have made it.
Hope this makes sense.
 
anthonybragg said:
We are not PAYE.
We are equal company directors we do 95% sub contract labour where 20% is taken by CIS the jobs we do we keep back 20% for corparation tax
our corparation tax bill is offset against expencises etc so far we have overpaid and get a BACS payment back.
our personal "wages" is made up of dirctors fee and dividends.
After our personal allowance we now pay personal tax on dividends
This for us is now have to be paid now on account so the HMRC have the money before we have made it.
Hope this makes sense.
Click to expand...

If you are taking a dividend and not a wage at all then that would be illegal and you would probably want to seek advice and delete all the messages in which you have admitted to that.
 
essex said:
If you are taking a dividend and not a wage at all then that would be illegal and you would probably want to seek advice and delete all the messages in which you have admitted to that.
Click to expand...
what we take each week is made up of directors fee and dividend.
I have tried to explain the best way I can sorry I'm not an accountant.
 
essex said:
Also known as a wage?????

Are you for real?
Click to expand...
Essex I have posted that I am not an accountant and have tried to explain on here the best way that I can if you think that you can explain better than me please go ahead as I now feel that you are just trying to find fault with what I am trying to say.
 
anthonybragg said:
Essex I have posted that I am not an accountant and have tried to explain on here the best way that I can if you think that you can explain better than me please go ahead as I now feel that you are just trying to find fault with what I am trying to say.
Click to expand...

As a Company Director you are an employee of the company. As such you will be paid a wage each month. Usually this is in line with the NMW. This income will be PAYE income and you will pay tax as per the tax set at the time.

After you have paid yourself then dividends can be paid if the company is in profit but if you work 50 hours a week then you should be paying yourself 50 hours a week at NMW level.

What you call a 'Directors Fee' is your PAYE wage that you will pay employers NIC, employees NIC and personal income tax on just like any other PAYE employee.
 
anthonybragg said:
Essex I have posted that I am not an accountant and have tried to explain on here the best way that I can if you think that you can explain better than me please go ahead as I now feel that you are just trying to find fault with what I am trying to say.
Click to expand...

Also I am sorry if I came across rude. As the Company Director it is vital that you understand how these things work. 'I am not an accountant' does not wash with HMRC. Ultimately you will be liable, not your accountants.
 
We are aware of our liabilities. " I am not an accountant " was in reference to me being able to explain the ins and outs of tax law and regulations.
 
I am the director of a limited company and do not take a monthly wage or directors fees, in fact nothing at all! I also work for the company. Please enlighten me where it says in legislation I cannot along with other company directors be paid a dividend if one is issued. Also are you sure that directors are not exempt from NMW legislation unless contracted!?
 
rolyberkin said:
I am the director of a limited company and do not take a monthly wage or directors fees, in fact nothing at all! I also work for the company. Please enlighten me where it says in legislation I cannot along with other company directors be paid a dividend if one is issued. Also are you sure that directors are not exempt from NMW legislation unless contracted!?
Click to expand...

It is really very simple. I take it you then take a 'Directors loan' when you need it then?

Assuming so your accountant will then work out at the end of the tax year how much to declare as PAYE and how much to declare as dividends.

'Silent' Directors that have no involvement in the day to day running of the business are exempt from the NMW. I am a Managing Director and therefor am not exempt.

There is an argument that if a Director is also on the tools then they are not actively a working Director so exempt from the NMW. However they would then need to be paid as an electrician and that then means NMW is applicable so no better off.

If you are taking 100% of your wage as dividends then this is 100% tax evasion and illegal. You are also breaking NMW laws unless you are not involved in the day to day running of the company.
 
Again you have stated very strong views which are your own interpretation of tax laws. The NMW legislation is quite clear and doesn’t mention managing or silent directors or those ‘on the tools!’ it clearly only mentions those subject of a contract. No contract as a director NMW simply does not apply!
 
I don't want to muddy the waters but are you sure a contact has to be explicit? When i was looking at employment law for sometime who was working without a contract for a dodgy company, it appeared that a deemed concontr was automatically formed, and if the statement of employment was not provided in writing then the court would decide the terms of the contract.
Obviously that was relating to actually working for an unrelated company, but I'd be surprised if there was no equivalent here.

AsAa different topic this minimum wage thing seems risky t me as well, you'd be lucky to find an electrician happy to work for minimum wage so even then one day the hmrc might start challenging the rates of pay when working for your own company.
 
rolyberkin said:
Again you have stated very strong views which are your own interpretation of tax laws. The NMW legislation is quite clear and doesn’t mention managing or silent directors or those ‘on the tools!’ it clearly only mentions those subject of a contract. No contract as a director NMW simply does not apply!
Click to expand...

If you are working as a Director on day to day activities just because you don’t have a written contract of employment does not mean you are exempt from NMW.

To pay yourself 100% in dividends is unethical and illegal.
 
johnduffell said:
I don't want to muddy the waters but are you sure a contact has to be explicit? When i was looking at employment law for sometime who was working without a contract for a dodgy company, it appeared that a deemed concontr was automatically formed, and if the statement of employment was not provided in writing then the court would decide the terms of the contract.
Obviously that was relating to actually working for an unrelated company, but I'd be surprised if there was no equivalent here.

AsAa different topic this minimum wage thing seems risky t me as well, you'd be lucky to find an electrician happy to work for minimum wage so even then one day the hmrc might start challenging the rates of pay when working for your own company.
Click to expand...

You first point is absolutley right. The courts will look at what was actually taking place if nothing is written down. Working as an electrician for a company and not being paid NMW will be seen as exactly that by the courts.

You second pount is also a good one. I do think eventually HMRC will look into what company directors pay themselves to ensure it is in-line with the average for that role.
 
Look, everyone can have their views but it is up to accountants to decide what is best for their clients individual circumstances. Whatever anyone says there is no single rule for tax affairs and it can be a minefield. My point in all of this and what is clear is that it is not an offence to pay yourself solely a dividend as a company director. The national minimum wage legislation quite clearly states that if a director is not subject of a contract they are not bound by the legislation, it is there in black and white. In legal terms a contract is stated in law. What is ethical does not come into it and it is not illegal to pay yourself a dividend, your argument is flawed and incorrect. End of!
 
what is this tax i hear so much about? i pay tax on beer, smokes, diesel, food, bills, materials, nowt left in the pot for any other taxes.
 
I've bitten the bullet and gone for a new accountant. She charges a monthly fee which includes self assessment, payroll, corporation tax (basically everything) so no nasty surprises this time. After just a phone call and few emails, the difference in level of service has really opened my eyes and highlighted a few things

Luckily I managed to change just in time before the new tax year and should be able to get my payroll etc set up.

Thanks everyone for comments and suggesting I change accountant :D
 

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