Two Initial Small Ltd. Questions

[Gustaf]

I'm a 20 years old student and in November last year I started running a small limited company. It has potential to grow substantially in the future, but as of now it is still a micro-entity and we do not yet have to register for PAYE. While most things have gone by rather smoothly so far in terms of accounting, there are two few question marks which I would appreciate your support with.

1. After going through HMRC's check of whether you need to register as an employer or not (https://www.gov.uk/register-employer), it was concluded that I do not have to do so yet. As previously mentioned, my company is yet a micro-entity and we do not have to register for PAYE. However, when I pay myself a salary in my position as director of the company, can I do so right away as long as it's properly recorded or do I need to take any special considerations in mind? In particular I'm curious if I'm meant to take the tax off of what I pay myself, give myself a payslip and then give myself that tax money back at the end of the year given that it would be too little to pay income-tax for. I also know that the company has to be profitable for me to pay myself, but I'm rather uncertain about the income-tax and payslip considerations.

2. If I appoint another person as a director alongside me, I need to write a Directors' Resolution, submit the person to Companies House, and inform my business bank. That's all clear to me. However, I'm curious to if I need to write and sign an employment contract with the person as well? He'll not be payed any fixed salary, but a share of the net-profit. However, he is fine in that the compensation isn't stated contractually. At this stage I would preferably leave the employment contract out, so I wonder if it's an absolute must or not.

Hope you don't mind these questions. I would typically go to a relative or someone of experience to ask them, but I'm from Sweden so my close contacts are not all too familiar with UK accounting practices. I realise that I should probably hire an accountant rather soon, but due to the yet modest revenue of my company, I would prefer waiting slightly.

[malvolio]

Don't mind the questions. However, let me pose one back to you first...

Have you bothered to read the guides on the right of this page, or IPSE's detailed "Guide to Freelancing" at www.ipse.co.uk (possibly more relevant to your situation tbh)?

But the quick answers are

1. How will you pay taxes if you aren't registered to do so and

2. A Director is an officer of the company, not an employee.

HTH... but I somehow doubt it....

[northernladuk]

2. If I appoint another person as a director alongside me, I need to write a Directors' Resolution, submit the person to Companies House, and inform my business bank. That's all clear to me. However, I'm curious to if I need to write and sign an employment contract with the person as well? He'll not be payed any fixed salary, but a share of the net-profit. However, he is fine in that the compensation isn't stated contractually. At this stage I would preferably leave the employment contract out, so I wonder if it's an absolute must or not. .

This link should answer your question.

Contractors

Why not just make him a shareholder that gets a share of the profits via dividend rather than a director, or is the a reason you need him as a director? Take some advice about how you give him shares though. I would be very wary indeed of any non contractual agreements, particularly if it's friends. Things could get extremely sticky when push comes to shove and either larger amounts of money or losses start getting incurred.

Most accountants will provide a free consultation before engagement so possibly be a bit cheeky and use these to ask your questions?

Maybe register with AccountingWEB and check/ask there. We run single director (in the main) LTD's for a very particular reason which may not be the same as you so our model/advice may not be the best.

I would say if you have any desires for this to take off that you spend a little bit of cash and do this right first time. Start wrong, and it has the potential to cost you a lot of money and heartache.

[Gustaf]

Don't mind the questions. However, let me pose one back to you first...

Have you bothered to read the guides on the right of this page, or IPSE's detailed "Guide to Freelancing" at www.ipse.co.uk (possibly more relevant to your situation tbh)?

But the quick answers are

1. How will you pay taxes if you aren't registered to do so and

2. A Director is an officer of the company, not an employee.

HTH... but I somehow doubt it....

Regarding your question, I essentially signed up today here after being referred by a friend, so I'm afraid that I haven't yet taken a good look at all the guides. I have tried to find some guides, but my questions concern a rather narrow area, so I'm not sure if they are helpful.

Thanks for your answers. Regarding 1. I'm already registered for corporate tax, but HMRC insists on that I don't have to register for either PAYE or as an employer.

This link should answer your question.

Contractors

Why not just make him a shareholder that gets a share of the profits via dividend rather than a director, or is the a reason you need him as a director? Take some advice about how you give him shares though. I would be very wary indeed of any non contractual agreements, particularly if it's friends. Things could get extremely sticky when push comes to shove and either larger amounts of money or losses start getting incurred.

Most accountants will provide a free consultation before engagement so possibly be a bit cheeky and use these to ask your questions?

Maybe register with AccountingWEB and check/ask there. We run single director (in the main) LTD's for a very particular reason which may not be the same as you so our model/advice may not be the best.

I would say if you have any desires for this to take off that you spend a little bit of cash and do this right first time. Start wrong, and it has the potential to cost you a lot of money and heartache.

Thanks for your advice and guide. I'll take a look at it. With regards to why he should become a director, he already acts and manages business in the company as a de-facto director, so it seems suiting to make it formal. Correct me if I'm wrong, but him becoming a director implies many duties and responsibilities which I think is appropriate for both him and I to have as we proceed with our business.

Thanks for your input! I'll read some of the guides and will likely turn to an accountant.

[ASB]

1. If there is any 'tax money' that would mean you should have registered. If gets paid to hmrc.

2. A contract is generally best. But then he is an employee not jst an officer and has to be paid national minimum wage for his duties as an employee.

[malvolio]

I have tried to find some guides, but my questions concern a rather narrow area, so I'm not sure if they are helpful.

I realised that, hence why I said to download the IPSE's Guide to Freelancing. It's got a much wider remit than the contractor guides that we tend to rely on, and will probably answer most of your specific questions.

[TheCyclingProgrammer]

Regarding registering for PAYE, remember as soon as you pay yourself above the LEL threshold or above the point at which income tax is due (depends on your tax code) you need to register for PAYE. I think you also need to register if you pay somebody who has another job or has had one at some point in the tax year.

If you want to pay the other director a share of the profits, you would normally make them a shareholder. Do you mean you intend to pay him a salary instead, but variable and proportional the annual net profits for the year?