HSMP extention - working through a limited company

[ilz]

I am currently a director of my own limited company. Most of my earnings is paid out as dividends and a small portion is paid out as a salary. I see that the guidance notes on the HSMP extention application says that dividends won't be allowed as part of your earnings, unless it comes from a company in which you are active in the day to day management.

My question is what evidence would I need to submit that I am part of this company (I was thinking my share certificate) and will they allow the dividend income at all?

Please help.

[Jk2007]

ilz,

Dividend income will be considered if they are earned income.

Don't you have pay slips, bank statements, and contract copies? Don't you have corporate tax vouchers for the dividends? If you have all these, the dividend income will be considered.

[ilz]

Hi.

I do have payslips and bank statements. I'll have to find out from my accountants about the corporate tax vouchers. Do you perhaps know whether they consider directors of limited companies as self employed or as independant contractors? I was planning to submit my payslips (showing dividends and salary) and my personal bank statements. Would it be necessary to submit my companies bank statements as well?

[Jk2007]

That depends on whether you are an employee of the limited company.

(1) If you are considered as an "employee", the payslips, personal bank statements, corporate tax vouchers, and contracts are enough.

(2) On the otherhand, if you are considered as "self employed", then you need to show business bank statements, and invoices to the clients

I think you are in category (1) above. I am not an expert, but others may wish to comment on your query.

[captain74]

If your company is indeed Limited then most likely you are an employee of the company as legally the company and the owner(s) are required to be two separate entities.

The question is - do you hold the shares (and hence the dividend on them) as a shareholder (i.e. did you buy them while setting up the company) or have they been awarded to you as an incentive as part of your compensation package?

In any case, if you are an employee, then as a director I assume you are involved in day to day management of the company and hence the dividend should be counted as earnings.

Interesting topic - any other views?

[Dawie]

I think the Home Office's intention here is to prevent people who invest in the shares of listed companies on the stock exchange from using the dividend income they receive from these shares as a source of income when applying for HSMP.

However, the vast majority of freelancers and contractors use a limited company of which they are the sole director and shareholder as a vehicle for invoicing their clients. They then pay themselves a nominal PAYE salary just below the yearly tax-free allowance to avoid paying any PAYE tax and pay themselves the majority of their income in the form of a tax-free dividend (tax free until their total gross income for the year exceeds £38,335).

This is of course acceptable to the Home Office because you are clearly in control of the day to day running of your own limited company.

[LondonBlonde]

You are all hiding behind the legal jargan of a limited company. I am concerned that the first few of you who try for FLR in this way may fail and become uneligeable for the transitional self employment route.

In my opinion, the HO might see your attempts to represent yourselves as an employee of a company you own as fraudulent.

Before taking this route, I would recommend;

That you are not the only employee of the ltd company (preferably not the only owner as well)
And, the company is taking in at least what you are claiming to be paid.

If you are the only person on the payroll, and the company is not taking in even close to the amt you are paying yourself, you might find yourself failing to qualify for FLR and loosing your business as a result.

[ajani]

A member of this forum applied using a Limited Liability company as a self employed and got approved.
If you incorporate a company and run it yourself i see no reason why you cannot describe yourself as self employed.
The most important thing is to ensure you meet the requirements under the transitional arrangement. By this i mean you must tick every box to ensure no documents are left out.
If this is done, i think you will get approved. Besides, i personally do not think the HO will refuse applications under the transitional arrangement for flimsy reasons. They are well aware that this will do nothing but open a floodgate of legal cases against them. Given the fact that the changes to the rule are retrospective and to me illegal.

[LondonBlonde]

A member of this forum applied using a Limited Liability company as a self employed and got approved.
If you incorporate a company and run it yourself i see no reason why you cannot describe yourself as self employed.
The most important thing is to ensure you meet the requirements under the transitional arrangement. By this i mean you must tick every box to ensure no documents are left out.
If this is done, i think you will get approved. Besides, i personally do not think the HO will refuse applications under the transitional arrangement for flimsy reasons. They are well aware that this will do nothing but open a floodgate of legal cases against them. Given the fact that the changes to the rule are retrospective and to me illegal.

I agree completely ajani. You are right that self employed should apply under transitional self employment even if they own a ltd company.

Yes, we've all been treated unfairly. Last thing we need is people losing their businesses unnecessarily.

How long do you think the transitional arrangement will be around? I worry about this.

[Jk2007]

I think whether you call yourself as "Self Employed" or "Employed" under a limited company arrangement, all that HO is interested is whether you have earned the amount for claiming points under the earnings category.

Various categories of employment have been defined in the FLR(HSMP)form to ensure that noone is disadvantaged because one has chosen a type of employment.

Under a limited company arrangement, if you do not have pay slips, then it is better to claim as "Self Employed". Because an employee normally receives salary and one should have proof for this.

In case of "Self Employed", you need to prove that your "company" had invoiced the client and you received payment from time to time. For this you should provide your company invoices and your company's business bank statements as proof along with your FLR(HSMP) application.

[LondonBlonde]

"Employed" under a limited company arrangement

When you say this, are you refering to someone who has set up his own ltd. company?

If you set up and own the ltd. company, you are still self employed and should apply as such.

[Jk2007]

Anyone who is working under Managed Limited Company applied / going to apply for FLR(HSMP). These are the kind of packaged companies offered by Umbrella providers where payment is made in salary and dividends.

[LondonBlonde]

Anyone who is working under Managed Limited Company applied / going to apply for FLR(HSMP). These are the kind of packaged companies offered by Umbrella providers where payment is made in salary and dividends.

Jk2007, you've still not answered the question. Are you referring to someone who owns their own limited company?

[Jk2007]

LondonBlonde,

I am not sure if anyone who formed own limited company is "Employee" or "Self Employed". Other experts in the forum may want to answer this question.

[Jk2007]

ilz,

You started this discussion. Where are you now?
What documents are you submitting?

[LondonBlonde]

LondonBlonde,

I am not sure if anyone who formed own limited company is "Employee" or "Self Employed". Other experts in the forum may want to answer this question.

I work under a managed service company provider (I don't own the company), and I am allotted a share on which dividends are paid from the contract income generated by me. I was told by the company that I am an "Employee". I have "PAYE" code allotted to me.

Jk2007, your case is clear (you are an employee who can claim divs as income) but ilz is not. He will need to figure out if the HO will accept him as an employee of his own ltd company.

Ilz - I think HO will give you clarification if you ask. These rules are so new, even an immigration atty might have trouble answering this question. If you are still in doubt after hearing from HO, my advice would be to play it safe and apply as self employed, using the transitional self employment rule if your company is not taking in enough money to give you the 75 points.

Good luck to you - LondonBlonde

[badhorse]

The most important thing is to ensure you meet the requirements under the transitional arrangement.

Several of you mentioned this arrangement, where can I find it?

[NationOne]

I am the sole director of a Limited Company.

Given the confusion around this aspect, I have decided one thing. I am gonna forget about the dividends and pay myself a handsome salary.

Better to lose out on tax than to lose out on FLR. You never know what kind of funny intepretations the HO will make out of this whole selfemployed/employed dividend/salaried situation.

[ilz]

Hi.

I have contacted the home office and they said that it is up to the person applying to decide whether they fall under the salaried employee, independant contractor or self employed category. Very helpful as usual. If they do assess your situation and decide that you are not a salaried employee as claimed, they won't reject your application, as long as you have included all the documentation required for self-employment or an independant contractor.

My limited company is managed by a service company, but I am the director and only employee. My plan is to submit the following:
-Payment advices by my recruitment agency to show what they were paying into my limited company
- Limited company bank statements
- A statement of earnings from the accountants who manage my limited company
- Payslips from my accountants showing what has been paid into my personal bank account
- Dividend vouchers for all dividends received
-My personal bank statements.

I am going to claim my earnings as a salaried employee. If they don't agree with that, at least they have all the other supporting documents to use to make a decision.

[LondonBlonde]

Hi.

I have contacted the home office and they said that it is up to the person applying to decide whether they fall under the salaried employee, independant contractor or self employed category. Very helpful as usual. If they do assess your situation and decide that you are not a salaried employee as claimed, they won't reject your application, as long as you have included all the documentation required for self-employment or an independant contractor.

My limited company is managed by a service company, but I am the director and only employee. My plan is to submit the following:
-Payment advices by my recruitment agency to show what they were paying into my limited company
- Limited company bank statements
- A statement of earnings from the accountants who manage my limited company
- Payslips from my accountants showing what has been paid into my personal bank account
- Dividend vouchers for all dividends received
-My personal bank statements.

I am going to claim my earnings as a salaried employee. If they don't agree with that, at least they have all the other supporting documents to use to make a decision.

Thanks for this ILZ,

Just curious, does your company make enough to give you the 75 points (if the Ho falls back on self employed documentaion?)

[ilz]

Yes, luckily enough I do have enough points so therefore I don't need to rely on the transitional arrangements for self employed persons.

[Jk2007]

I think ilz's position is safe as "Salaried Employee".

From the reply what ilz got from HO, it appears that HO is not very concerned how you call yourself "Employed" or "Self Employed". All that HO is interested is to know whether one has earned the required amount and all the earned income is declared for tax. That is why HO insists on producing Corporate Tax vouchers for dividend income as a proof that the dividend income has been declared for tax.

It is not clear, from the HO's reply, whether HO will substitute a candidate's employment with another type if one does not qualify under the category claimed. For example, if one has declared as "Salaried Employee" and did not qualify for earnings, then HO may simply refuse the application instead of substituting with another type and allow for transititional arrangement. HO may however take enough effort to determine if the candidate has earned enough for the points claimed.

My feeling is that "Self Employed" route is useful only if one requires transitional arrangement, or if one does not have payslips and corroborating personal bank statements.

What do you think LondonBlonde?

[LondonBlonde]

I think ilz's position is safe as "Salaried Employee".

From the reply what ilz got from HO, it appears that HO is not very concerned how you call yourself "Employed" or "Self Employed". All that HO is interested is to know whether one has earned the required amount and all the earned income is declared for tax. That is why HO insists on producing Corporate Tax vouchers for dividend income as a proof that the dividend income has been declared for tax.

It is not clear, from the HO's reply, whether HO will substitute a candidate's employment with another type if one does not qualify under the category claimed. For example, if one has declared as "Salaried Employee" and did not qualify for earnings, then HO may simply refuse the application instead of substituting with another type and allow for transititional arrangement. HO may however take enough effort to determine if the candidate has earned enough for the points claimed.

My feeling is that "Self Employed" route is useful only if one requires transitional arrangement, or if one does not have payslips and corroborating personal bank statements.

What do you think LondonBlonde?

Jk2007 - Again, I disagree. ilz is still required to submit all evidence for self employment or risk his application being rejected. So, in effect he is applying twice (more work than applying as just self employed).

Further, if his company was not taking in enough for the 75 points, he would then need to show three app routes 1) employee only, 2) self employed against point system and failing, 3) transitional arrangement for those in category 2.

I will be applying for flr one last time next year (fourth year here). Can't wait to put this all behind me. None of it is fair, is it?

Well done on the earnings ilz. Best of luck to you

[jay101]

Hi ...
I had sent in the query as to which category i would fall into sometime ago ... thought i should post it ...
I had asked my accountant to send a fax to the home office telling them i am the 100 % shareholder of the limited company but NOT the director ... this is the response i got from the home office team.

Dear Sir/Madam
>
> In regard to your client who is a 100% shareholder of a limited company, we
> will assess him as being self-employed.
>
> As evidence of earnings, it is required that he submits the following:
>
> * 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 your
> clients account.
>
> * Proof that your client is 100% shareholder of the company and/or runs
> the company, (such as a letter from his accountant).
>
> If you require any further information, please do not hesitate to contact
> us.
>
> Kindest Regards

hope this helps ...

cheers

[Jk2007]

jay101,

(1) Is a Dividend Tax Voucher different from a Corporate Tax Voucher?

(2) Do you also have the pay slips given by your accountant showing NI, and Tax deductions etc.,?