Being unemployed and working for a dormant company

[sid999]

Hi,

I'm not sure if this is the right place to ask this question, but people have been helpful so far, so I'll ask anyway.

I have setup a dormant company and I am currently in full-time employment. I am thinking of quitting my job and working on my business idea rather than working evenings and weekends as it will take a long time to develop and get up and running.

I have savings to help me get by, but during this time would I actually be classed of unemployment of self-employed?

Also, if I am self-employed my dormant company won't be making any money during the "setup phase", so is there any be state help that can help during this time?

Thanks

 

[Talay]

Quit your job voluntarily and you'll be barred from obtaining benefits for quite a time, perhaps 6 months. Quite right as well.

It is a risk, going it alone but whilst I am all for looking into and obtaining free advice, grants and so forth, I am loathed to pay for yet more benefits when there is no real need.

 

[sid999]

I was referring to grants, business support, etc, and after looking at the directgov website I have read that there is a very good chance of not receiving any benefits after leaving employment for no valid reason. As I stated I will be using my own savings, but I plan on using that to live on while grants, etc, would be for business use.

Saying that I asked for advice/guidance and not your judgement on my decisions or circumstances. I too have worked my many years and paid my share in taxes and national insurance, so please do imply that I am looking for a "free" handout.

Regards

 

[GeorgeM]

I think you'd be classed as self-employed if you are not seeking work - its up to you to declare to HMRC. You could leave your company dormant and just operate as a sole trader and pay your NI separately until you are ready to launch the business proper.

 

[sid999]

Hi George,

If I was to self-employed, but working on the product using my savings for day-to-day living, would I be right in thinking I would not have to pay any NI because I am essentially making no money?

Regards

 

[owas]

I think Talay was a bit quick to judge there.
It may take a long time to set up your business, but if I were you I would stick to working, and take a little bit longer on the business, you'll never know you may even benefit this way, as myself always changing ideas for the better.
It may also be an idea to keep the cash you have to invest in your business in the long run.
Not sure about the other question sorry, but good luck.

 

[BizGurl]

If you're classed as self-employed then you still have to pay NI but if you expect to earn under a certain amount (can't remember what it is) you can apply for some exemption certificate I think. As far as I'm aware, you'd be able to apply for working tax credits if you left work to work for yourself, which works out roughly the same as JSA, but you have to be working over a certain number of hours etc...and the rate depends on various factors such as age/hours/previous tax year/etc...if you're renting you could get help with c/tax and rent...but not mortgage...Don't quote me on this lol

 

[GeorgeM]

Hi George,

If I was to self-employed, but working on the product using my savings for day-to-day living, would I be right in thinking I would not have to pay any NI because I am essentially making no money?

Regards

I'm not an NI expert, so perhaps someone else can comment on that. I think if you take an NI payment holiday, then you need to make up those contributions or it could impact your pension entitlement when you reach retirement age.

 

[sid999]

Thank you all for your help.

It does not make sense to keep working while getting things up and running, but working on it during my spare time could mean it will take some time to develop (there is a LOT to do...as always ), but I will keep it in mind.

I am also looking into doing part-time work as this would free up a good 4-5 days (inc. weekends) and that could ease the dependency on my savings. All options and ideas at the moment...just have to work out which is best.

 

[Talay]

Sorry if I misconstrued

"won't be making any money during the "setup phase", so is there any be state help that can help during this time?"

as looking for the state to chip in cash because the business wasn't producing an income but that is how it read to me.

As for NI, you only need 30 years these days so missing years here and there out of ages 18-67 (or however high they raise it) won't make any difference.

If you are self employed, you are making nothing as you have no income. If however, your company paid you a salary, which could be under the NI / PAYE / personal allowance limits / 40% taxation (as you choose), the company would effectively be running at a loss, funded through director's loans to the company (to pay your own salary effectively) and those losses could be used against future income generated by the company without taxation back through the director's loan account.

I guess you could also get tax relief on the small pension contribution you can make as a non taxpayer. I think it is £3600 gross contribution each year.

I'm not a tax accountant but utilising tax breaks would seem to be the way to go.

 

[sid999]

No harm done Talay and thanks for the advice.

I spoke to someone at the Business Link last night and got phone numbers for some business organisations. When I speak to them I will bring up the possibility of the tax relief options.

 

[MyAccountantOnline]

Hi,

I'm not sure if this is the right place to ask this question, but people have been helpful so far, so I'll ask anyway.

I have setup a dormant company and I am currently in full-time employment. I am thinking of quitting my job and working on my business idea rather than working evenings and weekends as it will take a long time to develop and get up and running.

I have savings to help me get by, but during this time would I actually be classed of unemployment of self-employed?

Also, if I am self-employed my dormant company won't be making any money during the "setup phase", so is there any be state help that can help during this time?

Thanks

If you start trading/working on your business and its done in the company name your company wont be dormant, and you'll be employed as a director.

You may of course choose to undertake your work in your own name as a soletrader and leave the company dormant.

Bear in mind if you do commence in business as a soletrader and sustain losses you may be able to offset them against your income from your former employer and obtain some tax refunds.

Whatever you do dont forget the Annual Returns and accounts needed for the company whether it's trading or not. The penalties are the same whether a company is trading or is dormant.

 

[MyAccountantOnline]

Hi George,

If I was to self-employed, but working on the product using my savings for day-to-day living, would I be right in thinking I would not have to pay any NI because I am essentially making no money?

Regards

If you are self employed you are liable to pay class 2 NIC but you can apply for a small earnings exception certificate if you anticipate your earnings will be less than the threshold which applies at any given time (currently £5,595 pa).

 

[Chris Ashdown]

I would guess that if you asked a hundred one year old companies that started from scratch they would all say that sales were far lower and harder to get than planned for.

The time spent planning and setting up is the most important time and if at all possible please consider staying in employment up to the last second as you will need the money

From day one you should have your sales ready to go and the product if any comming in the next day, watch cashflow like a hawk as its the big big big killer

Good luck

 

[AmaRuS]

I think you'd be classed

 

[sid999]

Would I be right in thinking that being self-employed/employed as part of the dormant company really affects NI contributions?

With NI aside, if I were to quit and start working on the idea without informing anyone, i.e. job centre, hmrc, etc, then I would essentially just be unemployed and living off my savings? If I attempted to claim some kind of tax relief, then I would have to decide if I am self-employed or employed as a director?

If the company remained dormant, didn't trade and I worked as a Director, but took no salary, then would I still have to NI?

Sorry for all the questions, but I just trying to work out if I would be unemployed, self-employed or employed as a Director.

Thanks

 

[MyAccountantOnline]

If you trade via your company you arent self employed you are a company director and employed.

A company director will only pay NI on a salary if its above the NI threshold

I really wouldnt get too bogged down with NI you need to get some professional advice on which option is best overall for you ie trade via the limited company or as self employed. Bear in mind my comments about losses too.

 

[sid999]

Thank you all for your help. I tried to speak with HMRC earlier, but they were closed , but I'm planning on calling them tomorrow and work out which is the best option. Thanks again.

 

[Jet Virtual]

HI Sid I would say that perhaps the best thing to do may be to continue working until your company is starting to make some money. If you leave your job at this stage, you don't know if your business will take off or how long it will take to be profitable.

How do you start the business whilst still working your day job?

Find the answer and you will be in a much better position.

PM me if you need any additional help.

Best of luck,

Daniel

 

[sid999]

Just a quick update in case if its of use for anyone else.

I spoke to HMRC and if I left I would be classed as unemployed and although I am a director of the company and I am not employee because the company is not trading and I'm not paying myself a salary. Also, each month I am not working I would complete a P50 (I think) each 30 days to claim a tax rebate.