Employment Status

[welsho27]

Hi All,

1) Ive recently moved to an IT contractor and have started i am director of my LTD company and only employee, would this make me self employed or Employed when it comes to apply for a credit card etc?

2) Would i have to pay any monthly NI payments or will my accountant sort all those out when they do my return next year?

3) Also i am looking to lease a car but with no payments being paid into my business account yet as i only started working on a contract basis from last week, would i be able to take a lease out as a sole trader so that i can then claim tax relief on my lease payments and also so the credit check would be against me personally and not the business?

Sorry if these are basic questions,

Thanks for your time

 

[Figurate]

1) Depends on the credit card company - you are both a director and an employee, as you've said
2) That depends on whether you are paying yourself a salary over the NI threshold.
3) As you have an accountant, they would be the person best-placed to answer these queries in detail, particularly what best to do re the lease car (as you need to beware of the taxable benefit in kind of putting a car through the company)

Also, as an IT contractor - watch out for IR35 (again, your accountant should be able to advise)

 

[Anna Chandley]

Hello

You will be employed not self employed. I know when it comes to things like insurance they will often class someone who owns their own company as self employed so you should disclose that you are employed but you own the company that employs you - they can then decide which category to put you in.

The monthly NI payments are class 2 NICs payable by the self employed so you will not need to pay these. If you are paid a salary then you may pay class 1 NI but this will be dealt with via the payroll. Your accountant has probably suggested a minimal salary with dividends in order to reduce your tax and NI liabilities.

If you were to enter into car lease arrangements as a sole trader the you would be unable to claim these as a tax relief as you will not be trading as a sole trader.

You need to decide if the company will purchase a company car in which case there will be a benefit in kind on which you will be taxed or if you use your own car and claim the business mileage rate of 45p per mile (first 10,000 miles). You should ask your accountant to calculate the benefits of company car vs use of own car.

 

[welsho27]

Thank you so much for your replies, extremely helpful.

This has also opened my eyes to the details of the IR35 stuff so will ensure that working practices dont fall inside this ruling.

Many Thanks

 

[elaine@cheapaccounting]

I have a free guide on accounts for contractors - PM me your email if you would like a copy.

 

[PJP1983]

1) Ive recently moved to an IT contractor and have started i am director of my LTD company and only employee, would this make me self employed or Employed when it comes to apply for a credit card etc?

Mortgage companies class you as self employed if you own more than 20 - 25% of the company shares even if you are employed as a director.

I would assume you would be classed as self employed. It may be worth a quick phone call.

 

[elaine@cheapaccounting]

Mortgage companies class you as self employed if you own more than 20 - 25% of the company shares even if you are employed as a director.

I would assume you would be classed as self employed. It may be worth a quick phone call.

Extract from my blog on the subject ...

Planning for a mortgage ...

Getting a mortgage is hard enough at the best of times. Couple that with being self employed and the whole process can be a bit of a nightmare.

I regularly help clients get a reference together for their lender - a standard process made much more difficult by lenders and mortgage advisors lacking a clear understanding of self employed versus owning a limited company!

I find it absolutely incredible that some (note the word - some!) who earn their money through providing such services have not even done the basic research to understand their clients!

I digress so back to the point ….

Moving house is stressful. Delays in obtaining a mortgage add to this stress.

The key is preparation!

If you work for yourself either as a sole trader / self employed or as a director of a limited company make sure that you get your ducks in a row ready for that mortgage application process to swim along smoothly …

• Make sure that you have your accounts up to date with all of the documentation to hand - you will need a profit & loss account and balance sheet.

• Go back and find the same for the last three years! You will need at least the current & last three years to satisfy most lender requirements

• If you haven't had your own business for 3 years then you will need your PAYE P60s and / or P45s for the same period

• The objective is to have a clear statement of proof of earning for the last three years and this current year

• You will need to get the proof of earning signed off by your accountant.

• Make sure that you tell your accountant about the house move in plenty of time. It is usual that the lender will want them to complete a reference - so they need to schedule in the time to do this.Don't just drop this on them at the last minute!

• If you don't have an accountant you have two choices -First choice is to get one but bear in mind that an accountant (well a good one anyway) will not just sign off proof of earning on your say so. They will want to prepare / check your accounts and be able to verify the earnings via self employment returns and self assessment etc

• Or the second choice is that some lenders will work on a form called an SA302 which you would get from HMRC. This shows your tax calculation.Some lenders will take this as confirmation of your earnings.However do make sure that your lender will use these and that you have them!

Hopefully this will help a little to alleviate the stress of the mortgage application.

My message to lenders and mortgage advisors - come on earn you money!

Make sure that you fully understand the different between a self employed sole trader and a director of a limited company.

That is what you are paid to do!

from:

http://www.cheapaccounting.co.uk/blog/index.php/planning-for-a-mortgage/

 

[PJP1983]

That is very good advice, it is more important today to get an understanding of how a self employed person is trading and paid as this will have an affect on what lenders you can approach.

for example, some lenders for ltd company directors will use their slaray and dividends for their total income, other lenders will simply work off their share of the net profit and ignore salary and dividends.

So depending on how they are paid and what lenders are looked at, it could have a big effect on the total borrowing if there isn't a clear understanding from the begining.

 

[Abacus Accountants]

Welsho27

There is an attractive alternative to providing your services via your own company. The benefits are that you remove IR35 risk, remove the expense and hassle of running the company and keep more of your contract value as earnings.

You would need contract earnings of at least £4,500 per month to join and it successfully used by thousands of contractors.

There is a lot involved in the structure which would need explaining and more information would be needed to determine whether it is appropriate for you.

Regards

Andrew