Tier 1 ILR and Limited Company Tax

[raakash]

Dear Senior Members,

Please advice me. I showed income as employed + my limited company (self employed) and got extension.
I received only dividends from my limited company.
My question is : Due to expenses If I pay less corporation tax 60% to HMRC than I declared to HO, will I get any trouble from HO when I am applying to ILR.

Please senior members advice me.

[fn286]

Hi Raakash,
I'm facing similar situation. I did my extension as limited company director, and claimed all my earnings as dividends (no salary) as suggested by my accountant. Yes, I paid small amount of corporation tax. Also, submitted self assessment (SATR) for dividend vouchers only. The confusion is dividends are paid out on net profits only to share holders. I was only share holder and with my authority as director I took out early dividends as earnings. But companies do face situations where they face unexpected expenses after dividends paid out.

I think managing a limited company is considered as EMPLOYMENT as you work as director and you earn through dividends and salary. Many people get confused and consider it self employed work. Self employment is sole trading. This is what HMRC told me. so, I think we don't have to show net profits as income as in the case of self employment where points can be claimed for net income only. When we manage a limited company we pay corporation tax, and file tax return via Self assessment (SATR).

Please let me know if you got any advice this. I would request seniors on this form to help. Will there be any problem with home office if we paid small corporation tax and claimed higher amount as dividends??

Quick replies will be appreciated.

Thanks.

[vin123]

Hi both

No confusion.

If you are self-employed as a sole director and 100% shareholder of a company,
then your yearly income to show is = companies net profit + Salary you draw from company accounts(if any).

You may add dividend vouchers as well, but it does not matter in the above scenario.

However, make sure you get an account statement showing net profit and ownership declaration(copy of annual returns) that shows the shareholding pattern of the company from your accountant.

Hope that helps

Cheers

[fn286]

Hi Vin123,

Thank you so much for your quick reply.

I'm not self employed any more since I got a nice job. I started working as a sole director of my limited company between June 2011 and March 2012, and my extension was granted on the basis of earning via limited company dividends only (no PAYE at all). Even my self assessment was filed for dividends only.

But you must be aware that to avoid heavy corporation tax, accountants play with financials to avoid taxes. They usually show more expenses. E.g. if I claimed points against dividends worth £18000 via my limited company, but later company may face losses or increased expenses. So overall yearly net income will be reduced, hence less tax will be paid. Basically, dividends are the net profits of the company.

I have personally checked with HMRC and they confirmed that limited company director is not self employment even you're working for yourself. It's considered employment.

My biggest concern is will Home Office question me on the corporation tax return that was small? Will they reject my ILR saying why your dividend payments so high and you are showing more expenses to HMRC for tax avoidance? Will they consider net income of my company as my earnings looking at corporation tax return?

My understanding is if limited company sole directorship is employment than it doesn't really matter if company is making losses or profit. It's just like I'm getting my salary currently, I don't have to show home Office if my employer is making profits or not.

Self employment is different where you have to show net income as earning. But for employment (even if we say self) as company director, we have to claim points againts salary and/or dividends.

I have closed my company but I do have all the original documents I submitted during my extension. Do you think it would necessary to show to caseworker even I closed my company? I have just ordered HMRC corporate return letter but I know what it will have..clearly I claimed dividends in thousands and paid few hundred in corporation tax.

I'm really sorry to ask so many quesitons, I hope you could understand what I'm trying ask. I will be applying for ILR as salaried employed worker this month. I have heard Home Office is asking questions regarding earnings at the time of previous Tier 1 (G) extension thats why I'm concerned because it was granted on the basis of limited company director.

thanks.

[raakash]

Dears,

Thank you for your responses.
fn286 please kindly share your experience after you get the ILR.
Meantime I heard that at airport HO check the tax details and send back to people who paid less tax to HMRC.
Solicitor told he got two cases in the past for this tax problem.
Now HO cross check details with HMRC. Is it true?

[fn286]

Hi Raakash,

This is abosuletly impossible that at airport immigration/HO officer check your tax record with HMRC and sen dyou back. First, they should allow you to enter so that you pay tax and second officers at airport don't have any access to hmrc system. Only caseworker/PEO have.

My question and concerns are still unanswered but hopefully I will have it soon. Clearly limited company director is employed work as per HMRC, and I don't have to show net income/net profit as earnings. My problem is similar to yours, that I only claimed earnings againts dividend (no salary from my company). I just want to check why would Home Office would dig in so deep for a company closed. If they will ask I can show them SATR, and corporation tax letter but tax will be in small amount. Many people got ILR and caseworkder never asked anything about previous record. I work for highly reputable company now and its permanent job, plus I'm paying huge amount in NI and tax. I hope I get answers soon.

Yes, this is for sure home office (PEO) do check with HMRC specially where there have a doubt. ther employment history letter must show economic activity i.e. NI paid or limited company employee. Some times accountants just prepare documents and never submit details to HMRC. But goo dthings is details can be submitted in a back date even if its 2 years back.

Thanks.

[Wanderer]

Hi Vin123,

Thank you so much for your quick reply.

I'm not self employed any more since I got a nice job. I started working as a sole director of my limited company between June 2011 and March 2012, and my extension was granted on the basis of earning via limited company dividends only (no PAYE at all). Even my self assessment was filed for dividends only.

But you must be aware that to avoid heavy corporation tax, accountants play with financials to avoid taxes. They usually show more expenses. E.g. if I claimed points against dividends worth £18000 via my limited company, but later company may face losses or increased expenses. So overall yearly net income will be reduced, hence less tax will be paid. Basically, dividends are the net profits of the company.

I have personally checked with HMRC and they confirmed that limited company director is not self employment even you're working for yourself. It's considered employment.

My biggest concern is will Home Office question me on the corporation tax return that was small? Will they reject my ILR saying why your dividend payments so high and you are showing more expenses to HMRC for tax avoidance? Will they consider net income of my company as my earnings looking at corporation tax return?

My understanding is if limited company sole directorship is employment than it doesn't really matter if company is making losses or profit. It's just like I'm getting my salary currently, I don't have to show home Office if my employer is making profits or not.

Self employment is different where you have to show net income as earning. But for employment (even if we say self) as company director, we have to claim points againts salary and/or dividends.

I have closed my company but I do have all the original documents I submitted during my extension. Do you think it would necessary to show to caseworker even I closed my company? I have just ordered HMRC corporate return letter but I know what it will have..clearly I claimed dividends in thousands and paid few hundred in corporation tax.

I'm really sorry to ask so many quesitons, I hope you could understand what I'm trying ask. I will be applying for ILR as salaried employed worker this month. I have heard Home Office is asking questions regarding earnings at the time of previous Tier 1 (G) extension thats why I'm concerned because it was granted on the basis of limited company director.

thanks.

Are you saying you have falsely claimed expenses against tax?

[AUHS]

I know 2 persons personally. Firstly they showed enough earning to reach the exact points and later they showed more expenses to avoid the high tax payment by the HMRC .

Both if those have been refused ILR under paragraph 321/322.UKBA takes it as a deception.

Both guys are in appeal process by claiming different things.

One of the he guy was also sent back to his home country for the same reason.

IO at the airport can call HMRC or any where else to investigate some thing.

I do not want to scare you but this is reality and you should get your things in order to avoid bad consequences.

You can find more details by searching the ILR form on this board.

[vin123]

If you are sole director with 100% shareholding, that is considered as self employment.

In UK, corporation tax is not that 'heavy'.

Re: Expenses
A company will have 'expenses' if it makes a revenue.
It is not UKBA' official job to question about validity of expenses claimed and its admissibility by HMRC and why corporation tax filed at companies house is low.
However, if a sole director is generating 100K revenue and showing and 90K as expenses, then UKBA will smell there is something fishy ?. If 90K contains a salary component of 60K, then it is all-right to me.
And do not worry about how the accountant did your expenses - all he has done is maximise your earnings.

For your Tier 1 extension, What you need to do is very simple:

a) prove the revenue you have accrued for the company is by your work for the time period (i.e contracts signed showing rates per day, duration and the limited company name)
b) prove the company made a profit at the end of financial year (account statement ) along with original business bank account statement where the revenue and expenses is accounted
c) prove the company belongs to you (ownership) ) and shareholdings along with your personal bank statement showing dividend income and/or salary coming in.

Hope that helps?

[Wanderer]

If you are sole director with 100% shareholding, that is considered as self employment.

In UK, corporation tax is not that 'heavy'.

Re: Expenses
A company will have 'expenses' if it makes a revenue.
It is not UKBA' official job to question about genuity of expenses claimed and why corporation tax filed at companies house is low.

Do not worry about how the accountant did your expenses - all he has done is maximise your earnings.

For your Tier 1 extension, What you need to do is very simple:

a) prove the revenue you have accrued for the company is by your work for the time period (i.e contracts signed showing rates per day and contract signed on behalf of your limited company)
b) prove the company made a profit at the end of financial year (account statement ) along with original business bank account statement where the revenue and expenses is accounted
c) prove the company belongs to you (ownership) ) and shareholdings along with your personal bank statement showing dividend income and/or salary.

Hope that helps?

I think you underestimate the power of HMRC, and you need to study some Company Law, being a Director is not self employment.

Come back to us then when you've done a little reading......

[vin123]

I think you underestimate the power of HMRC, and you need to study some Company Law, being a Director is not self employment.

Come back to us then when you've done a little reading......

you meant UKBA ; right ?

Check this http://www.hmrc.gov.uk/leaflets/es-fs1.pdf



Let me know when do you want me to come back ???

[fn286]

Dear vin123,

I don't want to say this on this forum because you may have greta knowledge and you are so responsive, but you are sadly wrong. Even the HMRC link/doc you shared proves you wrong. I have checked with HMRC and they confirmed limited company directorship as employed work. You can also call and check with them. Please don't advice wrongly on this forum as some may face bad problems due to wrong advice.

Secondly, you fail to understand my situation. I'm not applying for Tier 1 extension. I'm applying for ILR. I did my extension 2 years back via limited company director route.

I think Wandere is right.

[Wanderer]

I think you underestimate the power of HMRC, and you need to study some Company Law, being a Director is not self employment.

Come back to us then when you've done a little reading......

you meant UKBA ; right ?

Check this http://www.hmrc.gov.uk/leaflets/es-fs1.pdf



Let me know when do you want me to come back ???

Come back when you've read some Company Law and not linked a pdf aimed at the lowest level full of likely-to-be's and maybes.

I realise English is not your primary language but please do some research before you do some damage. I work with HMRC systems and UKBA can see them.....

[fn286]

Dear AUHS,

Please can you share the employment status of those 2 guys you know who were rejected ILR. Were they employed or self employed?

I have a feeling they were self employed. IO at airport can surely call HMRC< HO, even consulate and parents ofcourse if they need to...my point was they don't have direct access to HMRC. And they cannot check HMRC record asap.

[vin123]

@fn286

It does not matter tier 1 extn or ILR - it is the same set of documents you need to take from a income demostration perspective.

Re: self-employment.
I still stick to my guns, and you can ask anyone else or come on, Wanderer - prove me wrong !!

Once again, I repeat -


If you are a sole director with 100% share holding in a limited company and the only revenue earning member of the company, then you are considered as self employed, though you still do not pay class 2 NIC contribution.

I realise English is not your primary language but please do some research before you do some damage. I work with HMRC systems and UKBA can see them......

That is the best joke so far for 2014 !!

For your information, there is something called Data protection and Data privacy act that is applicable to even government departments. If UKBA can see HMRC and Company house docs - why do someone have to take their self-assessments and company account statements and AR documents with them when they go for tier 1 extension or ILR.

What "systems" you are involved with HMRC??
English what, is that a language?

[Wanderer]

Groan...

Trust me, a Ltd Company and a the directors therein are SEPARATE LEGAL ENTITIES, self employment is a different animal totally, please do some research, google the veil of incorporation or something similar, it's not hard, even for the hard of thinking.

As for Gov systems, you will have to take my word for it.

Is there anything else you don't understand or that I can maybe help you with?

[AUHS]

All of the cases I mentioned above were of self employed cases.

On airport I think from this year they have access to check with HMRC or even if not it's take only couple of minutes over the phone.

[vin123]

Wanderer,

Please don't escape the scene - understand this for your benefit.

A Limited company director is considered as self-employed and he or she is required to file a tax return.
The reason being, a directors pay can 'vary' even if he or she is not a shareholder of the company or not.

For people filing for ILR or tier 1 extension, it does not matter.

All it matters is they take the right set of documents !

I now rest my case!

[fn286]

Guys, vin123 and wanderer,

please do not rage a war. If vin123 wants to believe and he is happy and then please let him be. I called HMRC for class 2 NI because I thought limited company director was self employment, HMRC told me 'Sir you are wrong' these were the words from HMRC... I even registered myself as self employed ... that guy sounded like so pissed that I felt how dumb I am to consider myself self employed for so long... well thats my story guys believe it or not...

Well dear vin123, Tier 1 extension and ILR may be similar but my question was related to estension 2 years back...company closed...tax paid... My question was will home office have any questions regarding my limited company ?

Let's hope any senior member replies....

[Wanderer]

Wanderer,

Please don't escape the scene - understand this for your benefit.

A Limited company director is NOT considered as self-employed and also he or she is required to file a tax return, the reason being, a directors pay can 'vary' even if he or she is not a shareholder of the company or not which has eff all to do with SE or Directors renumeration..

For people filing for ILR or tier 1 extension, it does not matter.

All it matters is they take the right set of documents !

I now rest my case!

FTFY

[Wanderer]

OK, it's fine - I'm off out now!

[fn286]

Oh sorry I forgot to add something Vin123...

because now I work for highly regarded organisation (a limited company) with few directors ... do you think all those directors are self employed?? NO THEY ARE NOT... they do have share on profits...in millions...FYI... but they are employed by my company... similarly I created a limited company... made myself a director ...company secratary was witness and he signed the docs... also... vin123.... if you research a bit more... limited company director take out salary from the company account...I did not take it..I only took dividends...but many directors take both... how come a self employed person paid a salary?

all those who have worked for reputable companies and have done white collar jobs they know...

Anways... no offense... it's just that UK visa is a serious issue and wrong guidance can ruin careers and lives... please be careful what you say...

take care vin123...

[vin123]

Ok, folks, fn286, wanderer - your last chance to get this right. And it appears like someone has mis informed fn286.

If you are self-employed: you MUST file a tax return.

A limited company director without a shareholding in a company is NOT self-employed. However, all active company directors must file a tax return.

However, Most immigrants on tier1 are using a limited company as a shareholding vehicle to channel dividend income. Hence they are classified as self-employed for the purpose of filing a tax return.

Now the all important question :Why ?

Answer: Because your income varies year by year when someone is self-employed !!!

For most, it does not matter whether they are really self-employed or not. UKBA wants to see your earnings. And it is your responsibility to prove your earnings. If you demonstrate your earnings by taking the right set of linked documents - then your will succeed in your application, otherwise no guarantee.

WHAT MATTERS FOR ILR OR TIER1 EXTN IS TAKING THE RIGHT SET OF DOCUMENTS FOR THE PURPOSE OF SUPPORTING YOUR APPLICATION TO QUALIFY!

[Wanderer]

Ok, folks, fn286, wanderer - your last chance to get this right. And it appears like someone has mis informed fn286.

If you are self-employed: you MUST file a tax return.

A limited company director without a shareholding in a company is NOT self-employed. However, all active company directors must file a tax return.

However, Most immigrants on tier1 are using a limited company as a shareholding vehicle to channel dividend income. Hence they are classified as self-employed for the purpose of filing a tax return.

Now the all important question :Why ?

Answer: Because your income varies year by year when someone is self-employed !!!

For most, it does not matter whether they are really self-employed or not. UKBA wants to see your earnings. And it is your responsibility to prove your earnings. If you demonstrate your earnings by taking the right set of linked documents - then your will succeed in your application, otherwise no guarantee.

WHAT MATTERS FOR ILR OR TIER1 EXTN IS TAKING THE RIGHT SET OF DOCUMENTS FOR THE PURPOSE OF SUPPORTING YOUR APPLICATION TO QUALIFY!

Let's leave it there shall we, must be nice on your planet

I am a Company Director, I am paid via PAYE and via Dividend, I fill in a SATR, however I AM NOT SELF EMPLOYED!! I wish I was, the tax advantages are much greater.

[vin123]

Hi Vin123,

Thank you so much for your quick reply.

I'm not self employed any more since I got a nice job. I started working as a sole director of my limited company between June 2011 and March 2012, and my extension was granted on the basis of earning via limited company dividends only (no PAYE at all). Even my self assessment was filed for dividends only.

But you must be aware that to avoid heavy corporation tax, accountants play with financials to avoid taxes. They usually show more expenses. E.g. if I claimed points against dividends worth £18000 via my limited company, but later company may face losses or increased expenses. So overall yearly net income will be reduced, hence less tax will be paid. Basically, dividends are the net profits of the company.

I have personally checked with HMRC and they confirmed that limited company director is not self employment even you're working for yourself. It's considered employment.

My biggest concern is will Home Office question me on the corporation tax return that was small? Will they reject my ILR saying why your dividend payments so high and you are showing more expenses to HMRC for tax avoidance? Will they consider net income of my company as my earnings looking at corporation tax return?

My understanding is if limited company sole directorship is employment than it doesn't really matter if company is making losses or profit. It's just like I'm getting my salary currently, I don't have to show home Office if my employer is making profits or not.

Self employment is different where you have to show net income as earning. But for employment (even if we say self) as company director, we have to claim points againts salary and/or dividends.

I have closed my company but I do have all the original documents I submitted during my extension. Do you think it would necessary to show to caseworker even I closed my company? I have just ordered HMRC corporate return letter but I know what it will have..clearly I claimed dividends in thousands and paid few hundred in corporation tax.

I'm really sorry to ask so many quesitons, I hope you could understand what I'm trying ask. I will be applying for ILR as salaried employed worker this month. I have heard Home Office is asking questions regarding earnings at the time of previous Tier 1 (G) extension thats why I'm concerned because it was granted on the basis of limited company director.

thanks.

fn286,

Please do not confuse yourself. By reading the above, you do seem to have a big problem understanding some basic tax and accounting concepts.

If you paid £1000 as dividend, then the company you own would have had at least £1000 as net profit.
That also means, your revenue is more than £1000.

Corporation tax rate is 20%.
For the sake of it, lets assume your Revenue was £1250, and then you paid tax of 250 to take a dividend of £1000

So strictly speaking with above example; you would have paid £2500 as tax before you took a £10K dividend, .

The idea behind taking the example is to prove you that, tax comes first - then only dividends.

So if you think you took thousands in dividends and paid only "hundreds in tax", then there is something fishy somewhere.

Some accountants do allow you to pay monthly dividends before tax, basically they do the above "virtual calculation" on a monthly basis. They then filing the real corporation tax and then sum it up all on a yearly basis assuming the company will always make a steady and fixed profit that won't go southwards!