Self -employed Ltd. company directors. - The Book-keepers Forum (UK)

Daga · Newbie

Self -employed Ltd. company directors.

cheapaccounting · Veteran Member

This sounds like they are trying to avoid PAYE - IR35 issue here perhaps.

As an accountant I would not recommend this approach to payign directors.

Interested to hear others views though.

BudgetB · Guru

That's an odd approach. You'd have to put them into subcontract costs. Do they have an accountant?

cheapaccounting · Veteran Member

I have seen this were each of the directors wants to be paid for the work that they do in the business.
It is an avoiding PAYE IMO.
They are not subcontract costs are they are paid to directors.
They will need disclosure in the accounts transaction with a director. This is where / how they may be picked up by HMRC.

Daga · Newbie

The company is registered as a subcontractor under CIS. They are company's owners/ directors/staff..and they are on self-employed based..and i posted their invoices to subcontractors account. Can I do that?

cheapaccounting · Veteran Member

They are not self employed but employees of the company IMO.

ADAS · Guru

I wonder if the Directors are also shareholders?

Is it possible to be an officer of a company and be engaged on a self-employed basis - it seems a contradiction to me?

MarkS · Expert

Hi Daga

Not really sure of the set up you are asking about.

Are you saying that the four directors of the company are invoicing the company for work they do on behalf of the company on a self employed basis.

Eg director 1 raises a sales invoices in their own/sole trader business name to the Ltd company for work done? This then becomes a liability of the company which the company will pay as an expense.

Dont see how this would be an IR35 issue as each individual director will be taxed on the income they receive on a self employed basis.

What does the company do to generate its income?

IR35 would be an issue if the directors were invoicing to 3rd parties through the company for work that could otherwise be seen as them acting as employees and avoid tax/nic by extracting the income from the company by way of personal allowance salary and dividend.

Would help if you can clarify the structure of the company's transaction a bit more.

MarkS

cheapaccounting · Veteran Member

what about avoidance of employers NI?

I would suggest checking ESI

http://www.hmrc.gov.uk/employment-status/index.htm

Are the directors aemployed by the company and ot self employed?

HendyPhilhendy · Guru

If they are owners then the most tax efficient way to pay them is via dividend.

The IR35 Issue is relevant. The earnings are likely to be for services to the company. Do they run another self employed business which providing services to this ltd company company. If they are acting for others then it could be ok.

Will respond in.more detail when on PC not phone.

HendyPhilhendy · Guru

Now on my PC so having a better look through the thread.

It is not impossible for directors to be self employed and re-charge the company for services. It depends on what the services are and what the directors other business is. As Elaine says earlier this would be a related party transaction and would need to be disclosed in the accounts.

The CIS registration is interesting as this would indicate they are contractors to the company?

The IR35 issue comes from the avoidance of Employers National Insurance, which is actually the biggest chunk.

I agree with Mark we need a bit more clarification of structure of the company and the relationship betweeen directors/ shareholders and their personal tax position. I get the impression this may be some type of joint venture.

My best advice would actually be to go and see someone qualified to give this type of advice! It is both you and your client that are at risk here. The issues are getting the correct legal position as well as being tax efficient.

Another classic example of someone taking on something they are not qualified to do.

Merlion ABS · Senior Member

This does seem odd , seem the company is acting as an umbrella company.

if they each want to be paid for the relevant work they do, then it would probably be best to look at the share structure of the company.

They could all be on the payroll as normal, but pay different amounts of salary each month, then make the rest up with dividends.

Each director could have a different class of share so they can all be paid different £ per share in order to ensure they are only paid what they are due.

this could utilise their personal allowance as well gain the benefit of paying less tax and national insurance overall.

They would need specialist advice from a fully qualified firm of accountants but it could be doable, but lots of paper work involved and fees involved in getting it set up correctly.

RuthA · Senior Member

As a bookkeeper, alarm bells would be ringing for me and I'd be making it very clear that this is a complicated issue beyond my experience and qualifications and that advice needs to be saught from an accountant.

BudgetB · Guru

To be fair, the OP wasn't trying to deal with it, or offer advice, all they asked was simply where to put the invoices in the bookkeeping system.

Daga · Newbie

Thank you for all replys...Im qualified person with 12 years exp. but Im not set up this company - its my new client...I try to clarify the structure and company story...Four persons was employed for some building company...Durning the recession they cut payroll costs and suggested them to run own business..In fact..they set up Ltd company (4persons) without any capital as a sobcontractor company under CIS..The Ltd company(subcontractor) invoising old company (contarctor)...Becouse it is very small company payroll cost its to hight so thay ( 4) are on self-employed bases. Can I put they invoices to subcontractor account or is any other option?..thank you

cheapaccounting · Veteran Member

sounds like an IR35 issue even more now?

BudgetB · Guru

Sounds even more complex! If all 4 are registered as directors, do as Elaine said earlier and put the invoice costs to Director Salaries, if they're not shown as directors then put to Subcontract Costs. And then let the accountant sort out the technicalities of it as presumably he's the one that advised this set up in the first place.

cheapaccounting · Veteran Member

If they are directors salaries then they need the paye calculated on them and they should be paid as such.

My advice would be to discuss this with their accountant BEFORE making the entries.

ADAS · Guru

Maybe I'm misreading Daga's second post but does the "new" company with the four directors only have 1 client which is their old employers?

Daga · Newbie

Yes..thay have just one client which is their old employers (contractor)

cheapaccounting · Veteran Member

Can I just check with the OP - does this company have an accountant?

Who advised them on this way of operation?

I really would refer it back to that person or firm for help on how your enter these transactions in the book.

If it were a client of mind I would advise that the directors should be paid by way of salary and dividends.

MarkS · Expert

4 former employees of a company have set up a company and they now invoice their former employer without having any other customers?

Dont see how can be anything other than IR35