My new potential client formed a ltd last year. She has only one customer, which she invoices every month and gets money onto her private bank account (approx £1500 a month) which she then spends on shopping, bills etc - personal expenses.
Ltd is not registered as an employer, no payroll in place, obviously no PAYE or NI paid to HMRC.
Sounds like you've got a bit of a rogue director on your hands there.
if she uses the company as a personal piggy bank then that's how HMRC will treat it.
The veil of incorporation will prove next to useless in this instance as the company has not been run as a seperate entity so basically if it came to anyone chasing debts against it then the courts would treat the company funds and the directors personal funds as one and the same.... You don't mention debt so that's just a hypathetical scenario to be forearmed for the talk that you're going to need to have with this director.
I've seen similar scenario's before. Normally with IT or consultancy type businesses... Is it one of those? If so does the director have any perception as to her responsibilities under IR35?
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Hi Aleksandra,
One of the benefits of founding a Limited Company is that the directors are not personally liable for company's debts. However, Ltd Copmany has to file accounts and Directors return to Companies House every year and pay Corporation Tax. You need to get straight with her affairs, as she can't run her ltd company like sole trader! Separate bank account is a must, she can't just pay herself directly to her personal bank account! Everything is just wrong!
...as she can't run her ltd company like sole trader!
Yes, this is exactly what it looks like at the moment.
I met her today for the first time and she seems totally confused, it is a young girl who set up a ltd because someone said she should do it...
I think she should operate as a sole trader but is it worth changing now? And still the previous year has to be dealt with... Any more suggestions regarding her situation? What do you think is the best approach to take?
I am assuming that she is still registered as self employed and has filed self assessment? Maybe the way to approache it is to contact HMRC and explain that the company was dormant last financial year? To deal with her income as a sole trader for that period? I don't know what is her situation with the Corp Tax? Did she file anything to Companies House?
just to clarify a point for Aleksandra as that last post can be taken in a couple of ways.
She would only fill in self assessment as self employed if her business is as a sole trader.
If the client is a director of a limited company she is an employee of that company. Not self employed.
Also, what period are we talking about here? What is the companies year end? Are we all still in the first period in which case this should be quite easy to resolve as Tom suggested towards the top of the thread via a directors loan account and then unwinding as dividends and/or annualised salary (no need for directors to be paid weekly or monthly. They can be paid annualy without issue if that proves to be the best approach).
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
just to clarify a point for Aleksandra as that last post can be taken in a couple of ways.
She would only fill in self assessment as self employed if her business is as a sole trader.
If the client is a director of a limited company she is an employee of that company. Not self employed.
Also, what period are we talking about here? What is the companies year end? Are we all still in the first period in which case this should be quite easy to resolve as Tom suggested towards the top of the thread via a directors loan account and then unwinding as dividends and/or annualised salary (no need for directors to be paid weekly or monthly. They can be paid annualy without issue if that proves to be the best approach).
kind regards,
Shaun.
Hi,
The client has never been registered as a self employed.
Accounting period end date is 30 April 2012 and it's the first year.
I am just looking through the documents and just found that the form (dated 1 May 2011) CT41G has not been submitted...
Maybe it would be worth treating all the income as self employment and close the limited company down? The only problem would be possible penalties for not registering as a sole trader within 3 month of starting the business. What do you think?
She is still in her first year, so she can deal with the DLA through dividends, pay herself a bonus to mop up her personal allowance, and then cease trading through the ltd co as at 30.4.12 and start as a sole trader.
If she'd have waited until after the year end, it would have been harder and messier. As it is now, it is salvagable (if that's a word!).
Maybe it would be worth treating all the income as self employment and close the limited company down? The only problem would be possible penalties for not registering as a sole trader within 3 month of starting the business. What do you think?
This could be an option, depending on what the invoices say, for instance. I had something similar happen recently with a CIS subcontractor who set up a company but continued being paid for CIS on his personal UTR and we ended up doing exactly what you suggest.
Although to complicate it all further I'm guessing that as a nanny she should really be employed by the family she works for???
I'm now wondering if the family suggested that she set up the Ltd in order to avoid their own responsibilities for things like holiday pay, sick pay, PAYE, NI, etc.
This could be an option, depending on what the invoices say, for instance. I had something similar happen recently with a CIS subcontractor who set up a company but continued being paid for CIS on his personal UTR and we ended up doing exactly what you suggest.
Although to complicate it all further I'm guessing that as a nanny she should really be employed by the family she works for???
She issues all invoices in her own name and not as the limited company. Money are coming into her personal bank account. All expenses are paid with her personal debit card. That's why I am thinking that maybe closing the company down and registering her a as sole trader would be a good solution.
Is there still £100 penalty for late registering as a self-employed?
