Below we have provided you with some general questions and answers.
Tell me about Company Directors and the Company Secretary.
Having chosen a company name the first decision that you will face is who to choose as a Director and Company Secretary.
The Director is easy, that will be you, the contractor. You may appoint additional directors if you wish, although
this is not a legal requirement.
Having a company secretary is a legal requirement and their duty, in theory, is to ensure accurate completion of all statutory
documents. In practice this role is often fulfilled by your accountants, so normally the spouse or partner is appointed as
secretary. However, it is also normal practice for accountants to hold this position as they do the work anyway.
SKIP TO TOP
How should I allocate shares?
The share holding is the second decision you will face. The share holding of the company will affect the split of any dividends
you declare. The dividends are paid in direct proportion to the number of shares held by each shareholder.
Anyone can be a shareholder and they don't have to be an officer of the company. As a general rule it is best to split
the share holding, so as to avoid paying tax at the higher rate (40%). A spouse or partner who does not earn is an ideal
choice.
SKIP TO TOP
How much salary should I draw?
When deciding what salary to take from the company there are several things to consider:
- Do you have a pension to which you contribute? If so, your salary will depend directly on the amount of contributions you make.
- Do you need to ensure that reasonable levels of National Insurance are paid? If for example if you are approaching retirement and are
ligible for a state pension you would be wise to maintain reasonable NI contributions.
- Are you working over 45 hours a week including time travelling?
If the answer to all these questions is no then a small salary is usually taken from the company and the rest is taken via dividends,
thus minimising the amount of National Insurance you have to pay. In this case we recommend a salary of £11,923.20 (as at 16-04-08)
per annum.
SKIP TO TOP
You told me that I should pay myself £11,900 per annum. How do you arrive at this
figure?
On 1st April 1999 the minimum wage was introduced.
March 6 2008 - The Government has announced that the adult minimum wage rate will rise from £5.52 to £5.73 an hour in
October. The youth rate for those aged 18 to 21 will be increased from £4.60 to £4.77. The Government has also
said that the rate for workers aged 16-17 years should increase from £3.40 to £3.53.
This means that (currently - as 16-04-08) a contractor (aged 21 and over), working 45 hours a week (including travelling time) should be earning
at least £11,923.20 per year (based on the minimum wage for over 21-year-olds of £5.52 per hour and a 48 week working year). So
allowing for a little leeway we arrived at £11,900.00 As of October 2008, this figure will increase to £12,376.80
Obviously, if you are working more than 45 hours a week, then your salary needs to be adjusted accordingly to ensure that the company
is not fined for breaching the minimum wage laws.
On the other hand, if you are working less than 45 hours a week, then you can take a smaller salary.
The remaining net earnings of the company are taken by way of dividends.
Note: There are situations, for example, being a Director of a one-man limited company, when these rules are simply not
enforceable. If the company fails to make sufficient profit, with the best will in the world, it would be impossible for the company to
pay the Director even a minimum salary.
SKIP TO TOP
Tell me about VAT.
If the value of your taxable supplies in the past 12 months or less has exceeded the current VAT registration threshold of (£67,000 - as
at 16-04-08), or the value of your taxable supplies in the next 30 days alone is expected to exceed this threshold, VAT registration is a legal
requirement. If your turnover is less than this then VAT registration is voluntary. For the latest upto date figure for VAT
registration see HM Revenue & Customs website.
In most cases we recommend that companies are registered for VAT.
Whilst waiting for your registration to come through you can still invoice clients for your services by simply writing on the invoice
"VAT registration pending, VAT invoice to follow."
Once registration is received then you will need to go back and invoice your clients for the VAT. This is called a VAT only
invoice and should have on it your VAT registration number.
All subsequent invoices should have the registration number and VAT at (17.5% - as at 16-04-08) added to the cost of services.
As well as charging VAT it can also be claimed back. To do this you must ensure that all receipts/invoices, where possible,
are made out to the company. VAT can be claimed back on all vatable company purchases and where the receipt/invoice shows a VAT
registration number.
If you are unsure about whether or not you can claim back the VAT then just ask a qualified accountant.
VAT returns are made quarterly and any VAT due is paid at the same time as the return is submitted.
SKIP TO TOP
Should I have a company car?
There are two main ways in which you can claim for car expenses through the company: -
- Option 1 - Fixed Car Profit Scheme. This scheme is when you own the car and you claim a mileage allowance for the number of business
miles you do. (The Inland Revenue definition of business miles does not include travel from home to work. However, as a
contractor, your work involves travel so you can claim for travel from home to work provided that your place of work does not make up more than 40% of
your time in a 24 month period.)
- Option 2 - Company Car, This is where the company owns the car and pays for all expenses relating to that car. This is classed as a
"benefit in kind" and you will have your tax allowance restricted because of it.
As a general rule, if you do more than 15,000 business miles per year in a low cost car then option 1 is the best. However,
if you do more than 15,000 miles per year or want to run an expensive car then option 2 is the best.
Obviously, the decision is different for each individual set of circumstances and so before any decision is made it is always wise to
speak to your accountant first.
SKIP TO TOP
What expenses can I claim for?
Any expenses incurred or purchases made to aid your work in the company can be paid for through the company and will be offset against
tax at the end of the year. If you are unsure about whether an expense is allowable or not then speak to your accountant.
SKIP TO TOP
What do I need to know about IR35?
Please contact an accountant for the latest developments regarding IR35.
SKIP TO TOP
What do I need to do to help me avoid an investigation and to ensure that if I have an
investigation, then I will have no worries?
Firstly, employ the services of a qualified accountant who is familiar with Computer Contractors.
Always keep your book-keeping up to date and never use the company cheque book to pay personal expenses. Also
don't be tempted to "borrow" money from your company.
Don't be tempted to round up your expense allowances, always be honest when recording your expenses.
Ensure your company and personal returns are submitted to the relevant authorities by the due date.
Minute directors meetings where dividends are voted and never back date dividends.
Don't put back income into a future year by delaying raising of invoices to your agency and finally don't ignore IR35.
SKIP TO TOP
