How do I pay myself & employees?

[scottlpool2003]

I have a tricky situation that may be solved here.

I registered a LTD company back in March and now need to sort out payments etc.

The company is web design and isn't making consistent money.

As far as I know, I have to be employed by the company as I'm the listed director.

I don't mind being employed by the company, but how does it work? Do I take a salary? If so, the company isn't earning consistent money so one week the company may make £1,500 the next few weeks it may make £0

Can I just take £100 here, £200 there?

Also, I have someone working with me, but I'm unsure how to pay him. Do I ask him to be self employed or do I employ him? As I say, the confusion is with not being able to give myself or this other guy a set salary.

I did go to the Inland Revenue today and they were extremely unhelpful. They didn't let me finish my sentence that the company was LTD before telling me to use the phone and register as newly self employed.

Any help/advise is truly welcomed.

Thanks.

 

[Lancelot]

As far as I know, I have to be employed by the company as I'm the listed director.

You don't have to be either. You may be the only shareholder but this doesn't mean you must be a director. However, it most cases the unique shareholder is also a director.

You don't need to be an employee.

I don't mind being employed by the company, but how does it work? Do I take a salary? If so, the company isn't earning consistent money so one week the company may make £1,500 the next few weeks it may make £0 Can I just take £100 here, £200 there?

In order for the company to employ someone, the company needs to be registered for a PAYE scheme. Check on HMRC website for details on registration.

Firstly, decide on a salary. I would recommend that you should set a minimum salary that does not attract any PAYE and NIC.

Charge the salary every month by debitting the P&L account and credit the director's loan account in the balance sheet. Then, you can take money out from the director's loan account whenever you wish and you have funds available.

Also, I have someone working with me, but I'm unsure how to pay him. Do I ask him to be self employed or do I employ him? As I say, the confusion is with not being able to give myself or this other guy a set salary.

You don't need to employ that person. You can either ask him/her to invoice you or if he/she doesn't want to be self employed, then you can pay him/her on a fixed salary or as hourly-paid. You put him/her under payroll and you need to deduct the PAYE, NIC (both for employee and employer) and pay them to HMRC.

I did go to the Inland Revenue today and they were extremely unhelpful. They didn't let me finish my sentence that the company was LTD before telling me to use the phone and register as newly self employed.

It doesn't surprise me.

 

[scottlpool2003]

You don't have to be either. You may be the only shareholder but this doesn't mean you must be a director. However, it most cases the unique shareholder is also a director.

You don't need to be an employee.

In order for the company to employ someone, the company needs to be registered for a PAYE scheme. Check on HMRC website for details on registration.

Firstly, decide on a salary. I would recommend that you should set a minimum salary that does not attract any PAYE and NIC.

Charge the salary every month by debitting the P&L account and credit the director's loan account in the balance sheet. Then, you can take money out from the director's loan account whenever you wish and you have funds available.

You don't need to employ that person. You can either ask him/her to invoice you or if he/she doesn't want to be self employed, then you can pay him/her on a fixed salary or as hourly-paid. You put him/her under payroll and you need to deduct the PAYE, NIC (both for employee and employer) and pay them to HMRC.

It doesn't surprise me.

Thank you so much, that's helped. Immediately after you posted this, I did a quick search and found this PDF file:

*******
It was a PDF file to a .gov URL but I don't have the correct post count to post links.
*******

Thresholds
The PAYE thresholds (the level of earnings at which tax becomes payable) are: £144.00 weekly
£623.00 monthly.

Rates
The tax rates are: Basic rate 20% from £1 to £35,000
Higher rate 40% from £35,001 to £150,000
Additional rate 50% from £150,001 and above.

So if I only earn £144/week, I don't need to inform anyone? I will still need to pay NI though? I think it's about £2/week.

 

[elaine@cheapaccounting]

Have a read of this on how much to pay yourself ...

http://www.cheapaccounting.co.uk/bl...do-you-know-what-your-take-home-pay-could-be/

 

[Lancelot]

So if I only earn £144/week, I don't need to inform anyone? I will still need to pay NI though? I think it's about £2/week.

You still have to register for a PAYE scheme. Your company will be given a unique reference number.

You, as employee, are liable to:
- income tax over the personal allowance threshold
- Class 1 NIC employee

Unless you are also a sole-trader, you do not pay Class 2 and Class 4.

The company is liable to:
- Class 1 NIC employer
- Class 1A NIC for taxable benefits, if any.

If you pay yourself £144 per week, you are still liable to NIC as the NIC's threshold is only £139 per week. It comes at 60p per week.

The company will pay 69p per week too.

However, the company will pay 13.8% Class 1 NIC employer for all wages that you pay to the second employee mentioned above.

 

[scottlpool2003]

Excellent information.

I'm getting the grasps of it now and have contacted an accountant.

So in your opinion, would it be better if I ask the person working with me to be self employed?

See, I was under the impression that I have to pay tax on his wages if he was self employed, and then he pays tax on his wages. But if for example, he is doing all of the programming on my clients websites, would that not come as a business expense if he was self employed?

Another thing is if he was self employed as a website developer, and I hired him per project as a web developer, do the VAT disbursement rules about web design still work for me? Or is that for individual companies?

Thanks for your time and help.

 

[Scalloway]

Excellent information.


So in your opinion, would it be better if I ask the person working with me to be self employed?

See, I was under the impression that I have to pay tax on his wages if he was self employed, and then he pays tax on his wages. But if for example, he is doing all of the programming on my clients websites, would that not come as a business expense if he was self employed?

You need to be sure the person is genuinely self employed, which is a question of fact depending on the circumstances of employment. I would suggest looking at this.

http://www.hmrc.gov.uk/employment-status/index.htm

If the person is self employed they are responsible for all their taxes, you just pay the invoiced amount. If they are employed you need to pay them through PAYE, deducting tax and national insurance. You are responsible for paying these deductions to HMRC. The employee will also have to get sick pay, paid holidays etc.

 

[Lancelot]

I'm getting the grasps of it now and have contacted an accountant.

Good move. You get expert advice and although it will cost you some money, it is money well spent and there is very little chance to mess the things up.

See, I was under the impression that I have to pay tax on his wages if he was self employed, and then he pays tax on his wages. But if for example, he is doing all of the programming on my clients websites, would that not come as a business expense if he was self employed?

Another thing is if he was self employed as a website developer, and I hired him per project as a web developer, do the VAT disbursement rules about web design still work for me? Or is that for individual companies?

Regardless the fact that the person is an employee (either on permanent or temporarily basis) or self-employed he works for your company (not for you) and it is the company who is responsible for paying all the taxes, etc. He is employed by your company not by yourself. There must be a clear delimitation between your company and you as individual.

If he is invoicing you, then your company have a commercial relationship with him. This does not apply if he is an employee. There will be an employment contract and generally more responsibilities on your side. If you employ him with a fixed wage, you've got to pay him the wage regardless the fact that you give him work or not. As Scalloway said there will be sick pay, holiday pay, etc. It is quite complex.

If he is self employed, then the invoice he gives you is your company's business expense and it is deductible for tax purposes. All you have to pay is the invoice. Nothing else.

 

[Anna Chandley]

I did go to the Inland Revenue today and they were extremely unhelpful. They didn't let me finish my sentence that the company was LTD before telling me to use the phone and register as newly self employed.
Thanks.

Just to be clear, you do not need to register as self employed because you are not self employed.

 

[BobBuilder]

You don't need to employ that person. You can either ask him/her to invoice you or if he/she doesn't want to be self employed, then you can pay him/her on a fixed salary or as hourly-paid

The above implies that you can arbitiraily decide if the person is an employee or not. Which you can't of course do.