Start-up first tax return

[Lewis Segi]

Hi,
I have started a limited company on July 2013. It is a 1 shareholder/director company (myself, registered as self-employed). I’ve never set up a PAYE scheme for that period. The company has made a profit of around £15,000 in the first year, not considering any remuneration.

I’ve had a previous PAYE job getting a salary until September 2013 of £23,000, so I guess my hands are tied for the allowance options. My personal bank account and the business account were the same for that period (I’ve set up a separated account for the business, which I should have done months ago!).

I would like to reduce the profit/tax bill on one hand and secure some payments for me on the other hand. I’ve had a number of conversations with accountants and they all differ on how to do this.
This is what I understood:
1) I have paid all the expenses of the company personally (around £10,000). Those moneys I can claim back without any tax issues.
2) On top of that, I could claim a remuneration via different options:
a. OPTION 1: Claim a monthly salary of £470 since august 2013. Since iis below the LEL threshold, I haven’t had the obligation of setting up a PAYE scheme. Here I am unsure since, as I said, I have had other PAYE income for that same fiscal year, which may mean I am above the threshold anyway!
b. OPTION 2: Claim that I have been subcontracted by the limited company for works unrelated to my role as director. For this I would need a services contract (well written to avoid IR35 issues) between my company and myself. I would obviously need to reflect this income in my self-assessment on one hand, and as a cost for the limited company on the other hand.

So I guess my question to the forum will be, are those statements and options explained above viable or have I been misled by my accountant and those things are too dodgy.
Any response will be extremely appreciated!

Thanks

[Scruff]

Hi,
I have started a limited company on July 2013. It is a 1 shareholder/director company (myself, registered as self-employed). I’ve never set up a PAYE scheme for that period. The company has made a profit of around £15,000 in the first year, not considering any remuneration.

I’ve had a previous PAYE job getting a salary until September 2013 of £23,000, so I guess my hands are tied for the allowance options. My personal bank account and the business account were the same for that period (I’ve set up a separated account for the business, which I should have done months ago!).

I would like to reduce the profit/tax bill on one hand and secure some payments for me on the other hand. I’ve had a number of conversations with accountants and they all differ on how to do this.
This is what I understood:
1) I have paid all the expenses of the company personally (around £10,000). Those moneys I can claim back without any tax issues.
2) On top of that, I could claim a remuneration via different options:
a. OPTION 1: Claim a monthly salary of £470 since august 2013. Since iis below the LEL threshold, I haven’t had the obligation of setting up a PAYE scheme. Here I am unsure since, as I said, I have had other PAYE income for that same fiscal year, which may mean I am above the threshold anyway!
b. OPTION 2: Claim that I have been subcontracted by the limited company for works unrelated to my role as director. For this I would need a services contract (well written to avoid IR35 issues) between my company and myself. I would obviously need to reflect this income in my self-assessment on one hand, and as a cost for the limited company on the other hand.

So I guess my question to the forum will be, are those statements and options explained above viable or have I been misled by my accountant and those things are too dodgy.
Any response will be extremely appreciated!

Thanks

So, you would rather take the free advice from a forum of Gladiators and Radiator Bleeders, than from your Professionally paid for Accountant?

This isn't going to end well for you.

[stek]

Hi,
I have started a limited company on July 2013. It is a 1 shareholder/director company (myself, registered as self-employed). I’ve never set up a PAYE scheme for that period. The company has made a profit of around £15,000 in the first year, not considering any remuneration.

I’ve had a previous PAYE job getting a salary until September 2013 of £23,000, so I guess my hands are tied for the allowance options. My personal bank account and the business account were the same for that period (I’ve set up a separated account for the business, which I should have done months ago!).

I would like to reduce the profit/tax bill on one hand and secure some payments for me on the other hand. I’ve had a number of conversations with accountants and they all differ on how to do this.
This is what I understood:
1) I have paid all the expenses of the company personally (around £10,000). Those moneys I can claim back without any tax issues.
2) On top of that, I could claim a remuneration via different options:
a. OPTION 1: Claim a monthly salary of £470 since august 2013. Since iis below the LEL threshold, I haven’t had the obligation of setting up a PAYE scheme. Here I am unsure since, as I said, I have had other PAYE income for that same fiscal year, which may mean I am above the threshold anyway!
b. OPTION 2: Claim that I have been subcontracted by the limited company for works unrelated to my role as director. For this I would need a services contract (well written to avoid IR35 issues) between my company and myself. I would obviously need to reflect this income in my self-assessment on one hand, and as a cost for the limited company on the other hand.

So I guess my question to the forum will be, are those statements and options explained above viable or have I been misled by my accountant and those things are too dodgy.
Any response will be extremely appreciated!

Thanks

What a supreme mess!

Speak to an good (read not cheap) accountant before you feck this up even more.

[TheCyclingProgrammer]

Hi,
I have started a limited company on July 2013. It is a 1 shareholder/director company (myself, registered as self-employed). I’ve never set up a PAYE scheme for that period. The company has made a profit of around £15,000 in the first year, not considering any remuneration.

I assume you mean registered for self assessment; you're not registered self-employed (or you shouldn't be), you're a company director. You don't need to set up a PAYE scheme unless you're paying yourself a salary so not necessarily an issue there. I assume you mean £15k of gross profit before corporation tax?

I’ve had a previous PAYE job getting a salary until September 2013 of £23,000, so I guess my hands are tied for the allowance options. My personal bank account and the business account were the same for that period (I’ve set up a separated account for the business, which I should have done months ago!).

Using a personal account for your business is not ideal but at least you've rectified that. I hope you kept good records and books so there is a proper paper trail showing what is the businesses and what is yours. Without knowing what went in and out during that time there could still be possible implications.

1) I have paid all the expenses of the company personally (around £10,000). Those moneys I can claim back without any tax issues.

That really depends on what the expenses were. If they were genuine business expenses (i.e. "wholly and exclusively" for the business) and its clear they were for the company, not you (so things like hardware, software, stationary, accountancy fees, other assets etc) then yes your company can reimburse you without any personal tax or reporting implications. You might want to show the money you've spent on the company's behalf as a credit to your director's loan account in your company books (so its clear the company owes you money).

Things get complicated if you've bought stuff on the company's behalf but don't have evidence of this, e.g. no invoices in the company name (I wouldn't worry for small expenses like stationary etc. but I'd say its vital for larger purchases and even more vital if you ever wanted to reclaim the VAT).

Its also not true if the expenses were your own out of pocket expenses, particularly things like business travel, calls, accommodation and subsistence. Your company can reimburse you for these without any tax implications for the company general speaking, but they normally need to be reported on a P11D and there are potential personal tax implications for you if your out of pocket expenses do not meet the "wholly, exclusively and necessarily" rule or any special rules for things like travel. There could also be tax implications for YourCo for certain BIKs (NIC mainly).

2) On top of that, I could claim a remuneration via different options:
a. OPTION 1: Claim a monthly salary of £470 since august 2013. Since iis below the LEL threshold, I haven’t had the obligation of setting up a PAYE scheme. Here I am unsure since, as I said, I have had other PAYE income for that same fiscal year, which may mean I am above the threshold anyway!
b. OPTION 2: Claim that I have been subcontracted by the limited company for works unrelated to my role as director. For this I would need a services contract (well written to avoid IR35 issues) between my company and myself. I would obviously need to reflect this income in my self-assessment on one hand, and as a cost for the limited company on the other hand.

For option a, I believe the LEL threshold is per employer. I'm not sure whether or not you'd have to set up PAYE so I'll let somebody else answer that but setting up a payroll is fairly straightforward. You should certainly consider taking a minimal salary to use up any personal allowance you have remaining after accounting for your other job as salary payments will reduce your corporation tax bill.

I don't understand why your accountant would suggest option b as it would seem to do nothing but introduce numerous unnecessary complications. For starters it would probably mean you'd have to register as self-employed.

You're a shareholder of the company and if the company has enough distributable profit you can simply take a dividend and pay no additional tax until you reach the higher rate tax threshold. If you have £15k gross profit, then after allowing for CT that would leave you with £12k of retained profit that you could potentially take as a dividend without incurring further income tax. But you should seriously consider letting some profit build up in the company to provide a buffer or "war chest" for times when you don't have a contract.

[TheFaQQer]

The company has made a profit of around £15,000 in the first year, not considering any remuneration.

Is that £15k after expenses? ie. you've factored in the reimbursement of expenses without actually making the payment back to the employee?

1) I have paid all the expenses of the company personally (around £10,000). Those moneys I can claim back without any tax issues.

Not necessarily that simple. You may need to declare the expenses on the P11D and then sort that out on your personal tax return to make sure that there aren't any benefit in kind issues here. Even if there aren't, then unless you have a dispensation, I think they need to go on the P11D and then you have another section on your personal tax return to claim back the tax.

2) On top of that, I could claim a remuneration via different options:
a. OPTION 1: Claim a monthly salary of £470 since august 2013. Since iis below the LEL threshold, I haven’t had the obligation of setting up a PAYE scheme. Here I am unsure since, as I said, I have had other PAYE income for that same fiscal year, which may mean I am above the threshold anyway!

That doesn't sound right to me. I thought that with the introduction of RTI, you need to tell HMRC at the time that the payment was made, so you wouldn't be able to do that. Your accountant would be able to clarify that, though.

b. OPTION 2: Claim that I have been subcontracted by the limited company for works unrelated to my role as director. For this I would need a services contract (well written to avoid IR35 issues) between my company and myself. I would obviously need to reflect this income in my self-assessment on one hand, and as a cost for the limited company on the other hand.

Never heard of that idea before, to be honest. I have absolutely no idea what that would give you, and why you'd need an IR35 friendly contract for work that you did via a company that you own. Perhaps whoever came up with that idea could explain more about what they are trying to achieve here - sounds like an unworkable fudge to me, but I may be missing something.

---

Did no-one suggest dividends to you? Looks like your accountant is missing some real basics and throwing in some extra nonsense instead. I'd ditch them and find someone who knows what they are doing.

[TheCyclingProgrammer]

Even if there aren't, then unless you have a dispensation, I think they need to go on the P11D and then you have another section on your personal tax return to claim back the tax.

It depends on what the expenses were but genuine company expenses paid for by an employee and then reimbursed shouldn't need to go on the P11D. But issues could arise if its ambiguous. Some things might be clearly on the company's behalf even if you don't have an invoice in the company name (e.g. accountancy fees and your accountant is only contracted to do YourCo's accounts, not yours). Some things might not (assets, or anything that HMRC rules stipulate need to be in the company name - could be tricky if you don't have invoices in the company name).

That doesn't sound right to me. I thought that with the introduction of RTI, you need to tell HMRC at the time that the payment was made, so you wouldn't be able to do that. Your accountant would be able to clarify that, though.

That's a good point although I guess a one-off salary payment could still be made as long as you set up payroll and run RTI correctly.

[Contreras]

a. OPTION 1: Claim a monthly salary of £470 since august 2013. Since iis below the LEL threshold, I haven’t had the obligation of setting up a PAYE scheme. Here I am unsure since, as I said, I have had other PAYE income for that same fiscal year, which may mean I am above the threshold anyway!

In answer to the final point above: No, because NI thresholds are per-employment.

That doesn't sound right to me. I thought that with the introduction of RTI, you need to tell HMRC at the time that the payment was made, so you wouldn't be able to do that.

I'm guessing that the OP's accountant is suggesting to keep salary below LEL for precisely the reason that it wouldn't need to be reported via RTI.

That's a good point although I guess a one-off salary payment could still be made as long as you set up payroll and run RTI correctly.

Salary as an annual lump sum is fine but technically it should be taxed as if wholly within that tax year. It would be possible with some creative accountancy to show it paid to the DLA during 2013-14 tax year and then withdrawn during 2014-15. Maybe the OP has a creative accountant.

[TheFaQQer]

I'm guessing that the OP's accountant is suggesting to keep salary below LEL for precisely the reason that it wouldn't need to be reported via RTI.

That's not what HMRC say:

Lower paid, temporary, irregular and casual staff
You'll need to report payments to all staff no matter how much you pay them, even those earning below the Lower Earnings Limit or those paid just once a year. So you'll have to enter details of these employees onto your payroll system. Be sure to get their employment status right.
If appropriate, set the irregular payment pattern indicator so HMRC doesn't assume that they've left your employment just because they haven't worked for a while.

Link

I don't know whether this is another example of HMRC's wishes rather than the actual legislative requirements though.

[TheCyclingProgrammer]

I don't know whether this is another example of HMRC's wishes rather than the actual legislative requirements though.

I think it's more a case of badly written HMRC advice again.

My understanding is: if you're registered for PAYE, you need to report your employees' pay using RTI, no matter what they earn, as your link says.

However, you only have to register for PAYE if the following apply:

When you need to register
As soon as you first employ someone, you will need to register as an employer with HMRC if any of the following is true:
you're paying them at or above the PAYE threshold
you're paying them at or above the National Insurance Lower Earnings Limit
the employee already has another job
they are receiving a state, company or occupational pension
you're providing them with employee benefits

Source: HM Revenue & Customs: How to register as an employer

In other words, if the only person you employ doesn't meet any of the above criteria, there's no need to register for PAYE and operate RTI. If you employ somebody else who does meet the criteria, then you have to register for PAYE and you'd then be required to operate RTI for all employees.

That's how I'm reading it anyway. Can never be quite sure with HMRC.

One thing that might be worth considering is if any expense payments that would normally be reported on the P11D (assuming no dispensation) would trigger the requirement or if its only if you make expense payments that are a BIK.

[Contreras]

In other words, if the only person you employ doesn't meet any of the above criteria, there's no need to register for PAYE and operate RTI. If you employ somebody else who does meet the criteria, then you have to register for PAYE and you'd then be required to operate RTI for all employees.

WTCPS. If all are below LEL then you don't need to do PAYE/RTI. If any one is above LEL then you must do PAYE/RTI for all.

One thing that might be worth considering is if any expense payments that would normally be reported on the P11D (assuming no dispensation) would trigger the requirement or if its only if you make expense payments that are a BIK.

In the circumstances, and assuming no tax liability, I think I'd quietly sweep that one under the carpet.