Hi Bill,

if he's a service provider you might find that agencies would only deal with him using that legal form. Certainly if you want to contract in banking or high finance it's either limited directly or limited via an umbrella company or the agencies won't touch you due to the risk that the contractor might be construed to all intent and purpose as an employee of the client.

The main thing with limited companies is to ensure separation from the owners. Purchases should be in the name of the company.

Don't forget that everything with a limited company is based on the companies year, not the tax year.

You need to file changes and an annual return with companies house.

The director is an employee of the company.

If the company is a service company then IR35 may be applicable. Even if it is not you need to be prepared to argue in IR35 speak with the revenue.

Sure that there's loads that I need to tell you but can't think what off hand so I'll just add to this as and when I think of things.

Let me know any specifics that you have problems with and I'll point you in the right direction.

cheers,

Shaun.

Thought of one! If he pays himself too many dividends the revenue will say that it's really salary and he'll end up paying NI on it.

If he pays himself a fortune in dividends and hardly anything in salary then the revenue will say that it's really salary.

As a director your client has a fiduciary duty of care for the company not dissimilar to the duty of care one has for a child.

-- Edited by Shamus on Thursday 4th of March 2010 04:51:39 PM

Hi Bill,

Sometimes it seems that the large practices give the small clients to trainee's for practice... Of course, the clients are never told that. and of course, if this ends up an investigation of the client then the client ends up paying through the nose for someone more senior at the practice to hold their hand.

the reality for your client is that they should pay themselves a reasonable salary on which they are able to pay their bills. This isn't what the accountant would say and your client may get away with paying minimum salary... But, the revenue are more and more applying tax retrospectively ass they win cases and this area is one of their bug bears.

For dividends, as this is not a service company I would suggest that the client pays a dividend no more than twice a year (one mid year, one just before the company year end) they can only pay a dividend out of profits.

If the companies not making a profit then they cannot have a dividend.

As for the tax code. The revenue seem to be making a real hash of them at the moment. I got one including having rental income from two properties that I sold three years ago. (now sorted).

Has your client got his yellow book yet for paying his tax & NI?

Don't forget that he also has to pay employers as well as employee's NI contributions (which is what makes dividends so appealing as there's no NI on divi's!).

Hi Bill,

Have you sent your clients previous accountant a letter obtaining professional clearance and handover information? If not, my advice would be to do so straight away so you have a clear idea of what exactly has, and has not, been done.

PS.congratulations on getting the new client!

Amy8n wrote:

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Shamus wrote:

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If he pays himself too many dividends the revenue will say that it's really salary and he'll end up paying NI on it.

If he pays himself a fortune in dividends and hardly anything in salary then the revenue will say that it's really salary.

-- Edited by Shamus on Thursday 4th of March 2010 04:51:39 PM

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Hi Shaun,

That's interesting.  The majority of my clients are limited companies and they all use different accountants.  On their accountants advice, most of them pay a directors fee of equivalent to their personal allowance via the payroll with the rest of their income in dividends.  My (limited) understanding was that this was an acceptable form of directors renumeration.

My apologies to everyone if I have taken this post off topic!

 

-- Edited by Amy8n on Thursday 4th of March 2010 06:29:49 PM

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Thats v. interesting amy, i say as i scratch my chin, that is exactky what i thought was the best route for directors.

 well done wella!

-- Edited by lor on Thursday 4th of March 2010 06:44:55 PM

Shamus wrote:

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Hi People,

probably not good advice from me as I'm sure that the revenue are more lenient with most directors than they are with those of one man service companies.

The revenues stance for such companies was always that if a director could not live on their salary then the dividend was regarded as salary.

I just know that I'm going to spend the rest of the evening now trying to find where that's actually written down on the HMRC website.

I know that it is, I've seen it... Just can't remember where!

We've not finished with this point. I'll be back.

Shaun.

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LOL!  We'll see you later then!

 

Fair cop, hands up, I'm wrong. (does happen occasionally!).

Been through all of my old bits and pieces (my office floor now looks like the Somme!). Basically HMRC really, really don't like it and to pay disproportionate dividends is just asking for an investigation... BUT... No matter how hard they come on it seems that they don't legally a leg to stand on.

They used to use this to go after IT contractors but once father Christmas gave them IR35 they moved onto using that to beat the entrepreneurial spirit out of people instead.

The general advice over on accounting web seems to be that the client should pay themselves a salary sufficient to count towards the annual requirement for a state pension. Also, although dividends can be taken more regularly it's a good idea to restrict them to quarterly.

One proviso though. Dividends cannot be paid if the company is running at a loss.

right, off to sit up the corner and hang my head in shame for the poor advice earlier.

Shaun.




-- Edited by Shamus on Thursday 4th of March 2010 08:15:18 PM

Hi Bill,

Congratulations, i would agree with you in that i also think things are picking up. I also think it comes down to hard work and 'hanging' on in there and having faith in the services you provide.

Regarding the salary vs. dividends, HMRC don't like this one bit and i've even had a heated debate with a representative from HMRC at a small business gathering about it. They'll try and persuade any business owner not to conduct there affairs in this way. That being said, i advise my clients to use the minimal salary and dividend renumeration process.

What level of service are you going to offer this client? Will you complete the submissions to companies house?

Kind Regards

Neil

Hi All

Thanks for the usual sound comments and advise.

Neil I do intend to offer him the complete service.

Rob, interesting how you handle salary, how do you square this with PAYE and submissions for NI and tax. Also it's a bit early in the morning for me and I'm only on my first caffiene fix couldn't work out BIKs? (probably kick myself when you tell me)

The one lesson I have had reinforced in this regarding clients is Communication. I think that the main problem the client has had, has been the fact that despite his requests, nobody was talking to him and he has voted with his feet.

Bill

Zoe wrote:

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To ensure dividends are seen as dividends, they need to be supported by the correct paperwork - eg board minutes and dividend vouchers.

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Hi Zoe
In the case of my client, he can sit around his kitchen table, say to himself "shall I have a dividend" then say "yes", then write a note to himself. Does this count?

Bill

 

Thanks Zoe

That would be really helpful.

I was only jestin in my last post. Like I said earlier, I think for this client becoming a Ltd Co was a bit of an overkill. I just can't see the justification, apart from a relatively small NI saving and the liability protection can anyone see any advantage he will have.

Perhaps it's me but in this instance I can only see negatives for him.

Bill

Hi Bill

I think you're correct. 

I have a client who was sole trader, she got a new accountant who advised her to go Ltd in 2007.  She couldn't get her head round not being able to use the company as her personal piggy bank no matter how many times I told her.  I had a word with the accountant when he came to do the 2009 year end.  He came last week and said words to the effect that "due to new legislation meaning it was not as lucrative for her to be Ltd" (I don't know of any) she was going back to sole trader from 5th April this year.  Now call me suspicious but I think he was worried about the way she'd be using the company.  Anyway I think this to'ing and fro'ing is likely to trigger an investigation which could be very interesting.

Sheila
(back from a week in sunny but cold Carnforth in the caravan)

Hi Bill,

sorry missed your earlier post...get ready to kick yourself BIKs 'Benefits in Kind'!

No this would be a monthly payment of, say £500 in order to use up personal allowance. The obvious benefit here is that the company's profit is recuced by £6k but the director pays no personal tax and ni (there will be minimal ers ni at the end of the year at this rate). Dividends are then paid monthly (Again assuming enough profit is made), and the benefit here is that because the dividend comes witha 10% tax credit, then the director will not pay any further tax/ni unless his overall income puts him into the higher rate band. The company will not pay ers nics on dividends either.
The question of whether it is worth incorporating, apart from benefits of limited liability, credibility etc, becomes a question of how much taxable profit is likely to be made. CT is now marginally higher than income tax but of course theer are these benefits of dividends. Converesley the added compliance issues and extra work for the accountant which means a far higher accountancy bill may outweigh the benefits. As a rule of thumb, I wouldn't suggest incorporating unless the business had taxable profits of at least £20k. I haven't done the maths but that would probably lead to a tax bill differentiation of around £1000, of which the accountancy bill will eat into big time and he will have to get used to running his business in a much more professional manner (which is no bad thing I guess!)

Since Friday I have discovered that the client has not taken any salary as such but has been just drawing out money as and when he needed it, to cover his living expenses. Because he is not familiar with the finer points of a limited company or PAYE he has just made a record of how much. I am now educating him and he is really not a happy bunny as he wasn't told anything before.

I don't know how much he has drawn at the moment but what I was wondering, is how to bring him back on track with regard to the money withdrawn and getting him upto date with PAYE, bearing in mind 5 April is just around the corner.

Any advise gratefully received.


Bill

Thanks again Rob

Bill

Excellent advice from Rob again.

Think that I really need to take a speed typing course as my two fingers and a thumb for the space bar never beats him to a post.

Morning Shaun

Thanks I will do.

It will be a few days before I see him again, as he is going to get in touch with his (ex) accountant and retrieve all the documentation.

How's the studying going? I see you are still as prolific as ever on here (albeit at some god forsaken time of day).

Bill

Fair cop.

how was the weekend Rob?

It was my boys birthday and I took him to the flicks to see Avatar... Absolutely the best movie that I have ever seen! the build up through the movie was timed perfectly and at the end neither of us could believe that three hours had gone by. We're now trying to find a cinema that's showing it in 3D so that we have an excuse to see it again!

Hi Bill,

No probs. My direct email is shaun.morris1@virgin.net as appreciate that it's not good to post details even if nobody can track them back to a person.

If you don't get a reply within an hour of posting me then my spam filters eaten it. Probably best that you post on here to tell me that you've sent it.

Keep going through brain meltdown in the study department. Group cashflow statements are giving the old grey matter real jip and keep popping back on here for light relief. Usually when winding down before bed.

I've managed to avoid a lot of posts that I would have normally picked up but yesterdays ICB thread really brought the grumpy old man out in me again.