Should unpaid directors be included in 'average number of employees' for annual accounts?

[J Sidoli]

When filing annual accounts, do you include unpaid directors in the average number of employees?

A friend and myself have a "side-project" small company that doesn't pay us anything... it's just the two of us as directors running it for free (for now!)... so is the average number of employees zero, or is it two?

 

[Scalloway]

I've just had a quick google on the subject and I would say if they are not earning anything then they are not employees for this purpose.

 

[J Sidoli]

Thanks @Scalloway ... however, for a bit more context... I have just appointed an accountant... and from the two we got quotes from, when I asked them... one said it should be 0 and the other said it should be 2! They are both chartered etc. and clearly have lots of clients and a good rep.

And.... my googling turns up different answers as well.

So......would you mind linking where you got this? I'm trying to find a concrete source because so far I am getting conflicting answers haha

Hence my post here to see if anyone can reference the 'rulebook' on the matter!

(perhaps it doesn't really matter though? perhaps companies house don't care so much about this as long as it's "pretty much" accurate... in which case the diff between 0 and 2 is irrelevant?)

 

[WaveJumper]

I would agree with scalloway and think you would be classed as office holders not employee's. Have a read of the gov website and some other hopefully useful info from another source on the subject

https://www.gov.uk/employment-status/office-holder
https://www.companywizard.co.uk/blog/is-a-director-an-employee-of-a-company

 

[Rawlinson Pryde]

The ICAEW says...

Are directors employees?
The answer is yes if, and only if, the directors also have service contracts for operational roles. If they only receive director’s fees and have no day-to-day operational role for which they are entitled to remuneration, then they are not generally employed under a contract of service.

If a company determines it has no employees, it should still disclose that fact.

Does a contract of service have to be in writing?
Not necessarily. It is possible to have a verbal or an implied contract of service, but this is not automatic. Judgement should be applied on a case-by-case basis, considering all relevant facts and circumstances.

Ultimately it is used to determine size of the company and micro entities can have up to 10 or less before it crosses that threshold, audits is a higher threshold.

https://www.gov.uk/annual-accounts/microentities-small-and-dormant-companies

 

[nelioneil]

When filing annual accounts, do you include unpaid directors in the average number of employees?

A friend and myself have a "side-project" small company that doesn't pay us anything... it's just the two of us as directors running it for free (for now!)... so is the average number of employees zero, or is it two?

I noticed you mentioned side project. Slightly off topic but if either of you have another job or pension then the company may need to register a PAYE scheme even if there is no funds to pay in the meantime.

https://www.gov.uk/paye-for-employers

 

[Newchodge]

I noticed you mentioned side project. Slightly off topic but if either of you have another job or pension then the company may need to register a PAYE scheme even if there is no funds to pay in the meantime.

https://www.gov.uk/paye-for-employers

Only if either of the directors is paid something.

 

[J Sidoli]

Thanks @Scalloway and @WaveJumper @Newchodge @Rawlinson Pryde ... this is weird though because apparently any business with more than one director has to have employee liability insurance.

As per convo I had here: https://www.ukbusinessforums.co.uk/...oyee-for-employers-liability-purposes.413135/

So... since we have two directors (neither on PAYE, no service contracts, both just office holders really) we are in a strange position where:

1. we do have to get employer's liability insurance
2. our accounts say we have zero employees

This is what has bamboozled me, because it seems inconsistent...

 

[WaveJumper]

The way I read this, yes you have no employees as directors are office holders, not paid but could still be doing something for the company?

On the other thread the bottom line reads:

“Even if you have only one director of a Ltd company with no employees, you may still be required to hold Employers Liability Insurance - especially if anyone is carrying out any paid or unpaid work etc etc

 

[J Sidoli]

Thanks @WaveJumper ... Yes, I guess it's just a bit of a quirky thing that we just have to accept. So, 'zero employees' and insurance it is