I did have a look at a previous link but think my question is slightly different.
I am helping 2 guys who have formed a limited Company.
1st director has his own limited Company and so is registered as so with HMRC.
2nd Director has his own sole trader company and is registered with HMRC as such.
Although they have now come together to compliment their skills, both are retianing their own individual companies. So far they have drawn "wages" but neither has paid any NI / PAYE.
Am I right in assuming that although they have registered in their own right with HMRC, they need to also register themselves as the new limited Company and start paying NI and PAYE here as well.
The Company was formed in October so if the answer is yes, what advice do you give for monies owed. The wages have been failry minimal to date
I am slightly confused. You say they have registered a company, then later say they should register again? I assume you mean register for Paye.
In any case they don't have to. They can invoice from their own businesses as contractors or management fees if they want to. Or they coud be dividends paid out. They could even record thm as loans to their other businesses. The key is that within the company accounts they have the correct related party disclosure.
__________________
Phil Hendy, The Accountancy Mentor
Are you thinking of setting up your own practice or have you set up and need some help?
If so a mentor may be the way forward - feel free to get in touch and see how I can assist you.
A sole trader and an individual who has his own limited company have now set up another limited Company. In other words they have set up a 3rd Comapny to combine expertise yet they are retaining the sole trader business and the original LTD company.
The sole trader is registered as such with HMRC and pays NI /PAYE through this business. Likewise the other Director is paying his PAYE /NI through his original LTD company.
My concern is that the 3rd new compnay is registered as such with HMRC but the 2 directors are simply drawing money at this stage. Do they have to pay additional NIC /paye on the 3rd Company? Assume they must
Some one may correct me on this but I thought it also depended on the way the Director was engaged, either on a contract of service, or a contract of employment
But I have a question. Are you saying that the Sole Trader is paying himself through PAYE?, or just that he is registered as an employer, and pays his employees through PAYE?
The sole trader is a separte entity to the new limited company and so he takes drawings and pays his PAYE/NI from this sole trader company.
In terms of the new limited company, both guys are listed as directors and have withdrawn funds. Neither guys have had much guidence from their accountant on this and they view the money taken as wages. I am trying to undertsand how this should be reflected. Perhaps a meeting with their accountant may be best????
Sorry Jane, not sure if I am misunderstanding the sole traders position, as a self employed person he pays his tax through self assessment (and not through PAYE). Any payment out of the business to pay his tax and NI liability is also drawings.
Let me just recap
Person A, is self employed. He should be paying any tax on his annual profit, Class 2 Ni monthly/ quarterly, and depending on his total profit may have to pay class 4 NI. This is done by registering as self employed and completing a self assessment tax return each year. Any tax, or NI paid from his business is drawings. The need to complete a tax return does not change, even if he also becomes employed (The self assessment tax return deals with income from employment, when the form is completed).
Person B, is already employed as a Director of a Ltd company, and is paying tax and NI at source from his wages, using Pay As You Earn. The company will also be paying corporation tax. As a director, he should also be completing a self assessment tax return.
Persons A & B have formed a new ltd company, and are employed as Directors, taking a wage. They should register the company as an employer, and deduct any tax and NI from their wages at source, using the Pay As You Earn scheme. This will be totally seperate from the other Ltd companys payroll, as it is a completely different entity.
Both partys will complete a self assessment tax return declaring any self employed income, and any employed income received as a Director (One of the boxes on the form askes if you are a Director)
Both limited companies, will individually operate a PAYE payroll sheme, and will pay the directors their net wages, and pay HMRC the deducted taxes and NI, plus an additional employers NI contribution.
Both Ltd companies will pay seperate Corporation Tax to HMRC, and file their accounts with Companies House.
HTH
Bill
-- Edited by Wella on Friday 8th of July 2011 01:24:12 PM
I think you will find they have formed a Partnership - which is a business (like a sole trader, but for more than one person!) and should be registered with HMRC as a partnership
I am AAT Level 2 qualified but new to Bookkeeping. I would have thought that their accountant should have advised them on this when the Company was formed as they did say they had had meetings with them to discuss ways forward. Bill has summarised it perfectly as I thought this is what was needed but just needed to be sure .
Bill is completely correct in his summary - the only spanner I could throw in the works is that depending what monies both directors invested at start up, and what profits have been made to date the money they have both taken could be treated as repayment of Directors Loan Account or payment of dividend - no PAYE scheme necesary. Otherwise a PAYE scheme is required and tax/ni calculated on gross earnings at basic rate as both have other income - and then entered on both of the SA returns as an additional source
It is absolutely not a partnership as you have quite clearly stated in your original post that they formed a limited company
Sorry Jane, not sure if I am misunderstanding the sole traders position, as a self employed person he pays his tax through self assessment (and not through PAYE). Any payment out of the business to pay his tax and NI liability is also drawings.
Let me just recap
Person A, is self employed. He should be paying any tax on his annual profit, Class 2 Ni monthly/ quarterly, and depending on his total profit may have to pay class 4 NI. This is done by registering as self employed and completing a self assessment tax return each year. Any tax, or NI paid from his business is drawings. The need to complete a tax return does not change, even if he also becomes employed (The self assessment tax return deals with income from employment, when the form is completed).
Person B, is already employed as a Director of a Ltd company, and is paying tax and NI at source from his wages, using Pay As You Earn. The company will also be paying corporation tax. As a director, he should also be completing a self assessment tax return.
Persons A & B have formed a new ltd company, and are employed as Directors, taking a wage. They should register the company as an employer, and deduct any tax and NI from their wages at source, using the Pay As You Earn scheme. This will be totally seperate from the other Ltd companys payroll, as it is a completely different entity.
Both partys will complete a self assessment tax return declaring any self employed income, and any employed income received as a Director (One of the boxes on the form askes if you are a Director)
Both limited companies, will individually operate a PAYE payroll sheme, and will pay the directors their net wages, and pay HMRC the deducted taxes and NI, plus an additional employers NI contribution.
Both Ltd companies will pay seperate Corporation Tax to HMRC, and file their accounts with Companies House.
HTH
Bill
-- Edited by Wella on Friday 8th of July 2011 01:24:12 PM
Bill, the only bit I would disagree with is that the new Ltd Company needs to set up a payroll scheme, unless it has other employees. It doesn't have to and in my opinion shouldn't. The extraction of funds is most likely to be by way of dividend?
__________________
Phil Hendy, The Accountancy Mentor
Are you thinking of setting up your own practice or have you set up and need some help?
If so a mentor may be the way forward - feel free to get in touch and see how I can assist you.
