PAYE or self-employed?

[JesusDontWantMeForASunbeam]

DP is a contractor but he's registered a company to receive wages into in the hopes of setting up an IT managed services business.

He's paying himself a wage of £30,000 and putting the rest back into the business and paying me £10,000 to do admin bits and bobs.

Are we better off doing this PAYE or self-employed?

[Badbadbunny]

You can't be self employed unless you can satisfy HMRC "employment status indicator". It's not a free choice - it depends on the exact facts/detail of the work.

Why is he paying himself so much as wages? There'll be a huge amount of employee and employer NIC due on £30,000. The usual method is paying a wage up to the NIC limit and then the surplus is paid as dividends which are NIC free.

Unless you are a shareholder, you'll be paid as a wage through PAYE. Unless you're also a director, you can only be paid a "market rate" salary for the time you work and according to the skill needed. You can't be paid £10k for a couple of hours per week for example. If you were a director, you could be paid £10k for doing very little as long as you were an active director, i.e. properly involved with decision making, administration and management, rather than just "doing the books".

[JesusDontWantMeForASunbeam]

Oh ok. Very new to all this.

How do dividends work? I'm not going as a director. It's more I'm doing 16 hours a week or so sourcing contracts, writing proposals, finance etc. I'm self employed anyway (childminder) so didn't know if it's just easier for me to add on the extra money to my tax return.

£30k was the amount he had as a salary before and the amount really needed to meet our household obligations. Is there a way to do this to pay some in dividends?

I've got some books out of the library to try and learn all of this but it's a bit of a minefield.

[AlexanderHamilton]

If it's a limited company then he is an employee of that company. He cannot be self employed unless he is a sole trader or partner.

You should be running a PAYE scheme & reporting to HMRC every time he is paid unless he earns less than £490 per month.

That's why most directors of limited companies pay themselves a minimum wage & take the rest in dividends as you only pay corporation tax on dividends not employer/employee NI etc.

You need to take advice from your accountant.

[JesusDontWantMeForASunbeam]

Ok- he can't be self-employed, can I?

How often can you pay out dividends? Can it be monthly or is it twice a year or similar?

Sorry for all of the questions!

[AlexanderHamilton]

Not really Jesus as you don't meet the criteria of a self employed person which includes some element of risk, an office/admin person working for just one person at their premises is rarely self employed.

Dividends can be drawn monthly.

[JaxingJump]

He would be better tax wise to stay as a limited company, pay himself yearly allowance (£11k ish)/12. Take 32k ish as dividends and pay you your £10k. Do you need childcare? You can use vouchers too.

You should hire a proper accountant. It will cost you £1k but save you £3k by the sounds of it.

[JesusDontWantMeForASunbeam]

Ah brilliant. Thank you. I'm going to ring round some accountants tomorrow when DS2 is at pre-school.

Dividends question- does he write himself a voucher then transfer the money out? He's the only director.

Thank you all for answering. He's wanted to take this leap for a while and I don't want to cock anything up.

[WitchDancer]

This is exactly why accountants are required. I think you need to go and seek advice rather than relying on strangers who haven't got full information about your circumstances.

[AlexanderHamilton]

You have to produce a dividend statement at the end of th year & declare them in his self assessment but honestly , if he's a limited company an accountant is a necessity.

[JesusDontWantMeForASunbeam]

What is better- an actual physical accountant with an office to visit or one of the packages online where it's all cloud based?

[AlexanderHamilton]

There is a big push to cloud based software. I've used it but had manual back ups of all paperwork.

I never visited my accountant but where I work now the accountant visits here. What's most important is someone you can speak to regardless of how.

[GoldTippedFeather]

You need both. You need a qualified professional to give you accounting and tax advice and you also need some sort of software to do the actually accounting, you can just use excel depending on the size of the company but this gets messy fast as the company grows.

Accounting and bookkeeping is a skill, I would suggest if you don't want to pay a bookkeeper (a qualified accounting doing the day to day books would be very expensive for a small company), then one of you should do a bookkeeping my course at the very least and read the rules and requirements of Companies House.

Also there are rules around paying out dividends depending on the profits and reserves of a company. Please don't go into this blindly with no proper advice.

[bonjovigirl]

i would recommend a physical local office accountant. You're more likely to have someone you can pick up the phone to which will be invaluable while you are learning.

Dividends can be declared often but they can only be declared from post tax profits - I.e. You have to have good enough book-keeping records to know that the business has made profits. Otherwise HMRC could deem it to be an illegal dividend/avoiding PAYE/NI.

Agree with PP that an accountant will be invaluable to you. They should be able to go through with you tax implications from the business and your personal sides to maximise take home earnings.

As an aside, if you are working for his business it might sense for you to be a shareholder (perhaps B class rather than A class shares) and director. Gives a few more options for taking dividends out of the business. These days there is a £5k/person dividend tax free allowance and this way you could take £10k out of the business (£5k dividend each) without incurring personal tax.

[bonjovigirl]

GoldTippedFeather is spot on.

[Badbadbunny]

What is better- an actual physical accountant with an office to visit or one of the packages online where it's all cloud based?

"Better" is down to your personal preference. If you prefer to deal "face to face" then a local accountant is clearly essential. If you're happy to deal via the internet or phone, then no need to have a local one at all.

But please note that there is no correlation in cost comparing local to remote - fees vary widely so unless you live in a very expensive part of the country, you'll find local accountants just as cheap as online. Please don't assume that online means cheaper!

Of course, most modern accountants will do both - you'll find most local firms these days work with online/cloud software and deal via the phone, so then you have the best of both worlds!

There's enormous choice. You'd be better choosing on the basis of finding someone you feel comfortable with and who can explain everything to you - regardless of whether they're local or remote. And, please, remember that the word "accountant" isn't protected, so literally anyone can call themselves an accountant and set up an accountancy practice. To protect yourself, unless you get a trusted recommendation, then check that prospective accountants are actually properly qualified/regulated for your protection.

[JesusDontWantMeForASunbeam]

Thank you.

Am I right in thinking that an accountant can advise on what is tax deductible, sort out the tax returns, company tax etc and I'll do the PAYE, receipts etc and just take it to them once a year?

Sorry for all of the questions!

[GoldTippedFeather]

Yes as Bad says, the term accountant isn't protected, which is really annoying for those of us who have worked very hard on our qualifications (rant over). ACA, ACCA or CTA qualified is probably your best bet for what you need. (Apologies CIMA people, I know much less about this qualification) You can check online for member lists.

I would suggest before even thinking of accounting software etc, speak to someone about basic business set up, what's going to work best for you, what you need to do legally then go from there before you start thinking about the ins and outs of how to declare dividends etc.

[Badbadbunny]

Am I right in thinking that an accountant can advise on what is tax deductible, sort out the tax returns, company tax etc and I'll do the PAYE, receipts etc and just take it to them once a year?

For very similar fees, most firms will do a "package" of services which will include the PAYE, VAT etc., with you just doing the basic data entry onto a cloud system. Then you get ongoing dialogue throughout the year which makes it a better outcome for all. You get up to date information and the accountant spreads their workload throughout the year. It's not too common these days to do the old "once a year" thing except for the smallest of businesses. As an accountant, I much prefer to have regular contact rather than "once a year" which helps my workflow and means that when I see an opportunity or a problem, I can tell the client for action to be taken. I really don't like "once a year" at all, and as I say, fees aren't really that much different, but client taxes are usually lower and other money saving and business improvement opportunities are higher.

Moreover, within a few years, something awful called "making tax digital" comes into force where HMRC will require quarterly submissions of sales, expenses, profit, etc., rather than yearly, which is a requirement that cloud/online software can easily meet.

I think it is time for you to talk to a few accountants and listen to what they suggest.

[Hoppinggreen]

Find a local accountant, preferably one who uses Quickbooks or xero ( accounting packages). Get the accountant to do the company set up and give general advice but then once a year ( or per qtr if VAT reg) hand over the Quickbooks logins to the accountant to do year end tax .

[JaxingJump]

I found the cheapest one I could online, specialising in small ltd. companies, and they do everything efficiently. Including payroll for me and my part timer. No problems with them whatsoever and they have given me great advice on how to be more tax efficient where I wasn't previously. Crisp Accounting is their name but just google and find the cheapest and test how helpful and informative they seem on the phone.

[Badbadbunny]

I found the cheapest one I could online

They're not actually that cheap to be honest. I'd say more mid-range. Some could say they're actually expensive seeing as they're not registered/qualified "chartered" accountants.