Working through Managed Limited Company

[chiram91]

Hi there
I have been working through a limited company over the past 6 months where I am paid minimum wage via Salary and receive the rest as Dividends after company tax. My employer pays my recruitment company, the recruitment company pays my Limited Company (Managed) and the Limited company pays me.

Under the new HSMP Points that are awarded for income have been broken into 3 categories
- Salaried
- Independent Contractor
- Self Employed

My question is am I a Independent Contractor or Self Employed, I have read everything I can find and it is not any clearer.

What forms of evidence do I need to supply and is there a caseworker manual?


Please help

C.R

[Ashwin2005]

I think you are an employee of the Limited Company. So, you are salaried..
However, you can show your dividends, if they are earned income.

You will not be disadvantaged.

[jay101]

hey dude ...
I am under the same system of pay ... i also get paid an expense allowance which forms a part of my sal . . .
I enquired with the home office directly asking them what type of employment do i fit into ... according to them I am 'self employed' and i need to include the foll with the application . . .

* Personal tax returns and/or corporate tax vouchers from the company to prove the dividends have been declared in earnings.

* Pay Slips to prove the income has been earned.

* Bank Statements to prove the money earned has been paid into my clients account.

* Proof that I am a 100% shareholder of the company and/or run the company, (such as a letter from my accountant).

but if u actually see only the pay slips and dividends then our sal goes down by quite a bit, as the actual amt tht has been earned by us is the income generated by the managed company.
So the actual question is would they consider tht income as ours or wouldnt they
anyone with any additional information on this pls help . . .

cheers . . .

Jay

[Spear]

Hello
I'm planning to open a self employment sole trader business to get additional income for extension.
According to the old HSMP caseworker guidelines for self employed people your income is what you put into your bank account from your business bank account. Not the overall profits of the company. Pay slips are not required, (for self employed - but I assume if you work for your own limited company you have to show them). You must be registered for tax and be able to show registration documents.
So your best bet is to pay yourself a lot. Otherwise you lose. Of course by paying yourself more you have to pay far more taxes.

[lanr3e]

So your best bet is to pay yourself a lot. Otherwise you lose. Of course by paying yourself more you have to pay far more taxes.

How is the amount of Tax calculated?

If the business fails, what happens at the time of extension?

[Spear]

For limited companies - the company as well as the employee has to pay taxes, Therefore if you own the limited company and pay yourself then you have to pay insurance and personal taxes on the employee's salary,then pay company taxes on the salary as well. Double taxation.


Income tax is payable if you employ others or you are the director of your own limited company. If you set up a limited company and work for it, the company will pay corporation tax on its business profits and you’ll be taxed as an employee of the company.

You will pay income tax and employee’s Class 1 National Insurance contributions on your employment income from the company. This is called PAYE — Pay As You Earn. Income tax is deducted from all earnings
above your personal income tax allowance. Your allowance depends on your circumstances.
Your business also has to pay employer’s Class 1 National Insurance contributions for you and any other employees. Your company’s profits each year are liable for corporation tax.

For self employed

National Insurance contributions (2006–07 tax year)
Class 2 contributions £2.10 a week
Class 4 contributions 8% of your annual profit between £5,035
and £33,540 and 1% on profits above £33,540
Income tax (2006-07 tax year)
Basic personal allowance £5,035
Tax rates on income above personal allowance
Starting rate £0–£2,150 10%
Basic rate £2,151–£33,300 22%
Higher rate More than £33,300 40%


For Limited companies
National Insurance contributions (2006–07 tax year)
Class 1 contributions 11% of weekly earnings between £97 and £645
and 1% on earnings above £645*
*Lower rates apply if you belong to a
contracted-out occupational pension scheme
Employer’s contribution 12.8% of employee’s weekly earnings above
£97 a week
Income tax (2006-07 tax year)
Basic personal allowance £5,035
Tax rates on income above personal allowance
Starting rate £0–£2,150 10%
Basic rate £2,151–£33,300 22%
Higher rate More than £33,300 40%

[lanr3e]

...So all docments for FLR extension by a self-employed HSMPian will have to top show all these transactions? It's a tough terrain to jump into! So as for Spear's suggestion, if you pay yourself too much. you will end up paying too much tax but if you pay yourself too little you may loose points for earnings! what a vicious circle!!

[Ashwin2005]

If you are contracting through a Limited company not owned by you, and the company pays salary, then you are effectively "Salaried Employee" of the company. I think this is called Composite Company arrangement.

As long as the pay slips show the salary, dividends, and the contract income reconciliation, then

(1) The Pay slips
(2) Corporate Tax Vouchers, and
(3) The bank statements showing the income credited into your account

Should be enough to claim points under earnings as "Salaried Employee".

The problem only arises if you want to claim any income that are not shown on the salary slips. I believe expense allowance will not be considered for claiming points under earnings unless they are included in income tax calculations.

[sids]

Hi

What I understand from the discussion is that the earning level of self-employed person should be the same as the salaried person in order to qualify under the new rules. But the new transitional rules for self-employed do not mention any earning level.

Secondly, what if you pay yourself a huge amount (as an employee of your own company) in order to show earnings and your company is not making any profit as happens in case of most of the businesses in the gestation period. Will that situation be acceptable to HO?

regards,
Sids

[Spear]

"what if you pay yourself a huge amount (as an employee of your own company) in order to show earnings and your company is not making any profit as happens in case of most of the businesses in the gestation period. Will that situation be acceptable to HO? "

Thats a question I wonder about since I am going into self employment in order to meet the requirements for extension. It is indeed a loophole in the system that we would probably not know about until members report of several extension applications in similar circumstances.
Any one can take a business loan or personal loan - start a business and pay themselves monthly regardless of if they make a profit or not, or even sell one product or service. Taxes, insurance would be paid on the salary and it would appear on tax returns. In any case most busnesses do not make a profit in the first years. Also if the HO does not accept this then bonafied self employed people would suffer

Another issue is that self employed persons do not have seperate business tax returns yet this is required by the Home Office. Also if you sell a cash sales product/ service (e.g. hosting workshops, fixing computers, tuition for A'level/ college students, small shop / Kiosk type business) then how acceptable is this. Invoices would be hard to obtain of accounting purposes. However doing these activities part time can easily raise an additional 800 - 2000 GBP cash per month.

[John]

For limited companies - the company as well as the employee has to pay taxes, Therefore if you own the limited company and pay yourself then you have to pay insurance and personal taxes on the employee's salary,then pay company taxes on the salary as well. Double taxation.

Not so, the company will only be liable for Corporation Tax on its profits, and those profits will be calculated by deducting any salary, and expenses, from the gross receipts.

So absolutely not correct that there is double taxation as you suggest.

[sids]

' Also if you sell a cash sales product/ service (e.g. hosting workshops, fixing computers, tuition for A'level/ college students, small shop / Kiosk type business) then how acceptable is this. '

I was discussing the situation (formally) with a lawyer today and he was of the opinion that not all type of businesses would be acceptable, as the rules are for highly skilled persons. He excluded convenience stores, restaurants etc.