Director signing on

jilt

I have a new client who registered a ltd co in June 08. The company was set up in order for him to 'work' for another company but not as an employee - still unsure that he's escaped the IR35 trap. He doesn't have a PAYE scheme and has taken cash out of the business purely as dividends. He 'worked' for this company until Feb 09 and in May 09 he signed on! His limited co still exists, it didn't 'trade' again until late 2009.

I know he's not technically self employed but is it ok for a company director to sign on and claim benefit? The benefit he has received will obviously have to be included on his SE TR, is that all I need to do? can't quite get my head round this one.

Monsoon

jilt wrote: »

I know he's not technically self employed but is it ok for a company director to sign on and claim benefit? The benefit he has received will obviously have to be included on his SE TR, is that all I need to do? can't quite get my head round this one.

If he is working under 16 hours a week he is entitled to Job Seekers Allowance.

If he is working over 16 hours a week, he can apply for Working Tax Credit, although he may have to pay himself National Minimum Wage through his company. The guidance on this is unclear (I think) as to whether the 'typical' low sal-hi divs method of remunerating a director/shareholder is compatible with a WTC claim. I'm not sure what the rules are on WTC and NMW if a director is working full time but can't afford to take any money out of the business at all. Might have to go read up on that one!

jilt

Monsoon wrote: »

If he is working under 16 hours a week he is entitled to Job Seekers Allowance.

This disturbed me, as he wasn't paying himself a wage through PAYE even when he was 'working' so how does he prove how many hours he is or isn't working?

Monsoon wrote: »

I'm not sure what the rules are on WTC and NMW if a director is working full time but can't afford to take any money out of the business at all. Might have to go read up on that one!

Yes I have wondered this myself how does a company director get around the NMW when only taking a minimal salary, this is what I have found out:

'The NMW does not apply to company directors unless they also have contracts that make them workers. Company directors are office holders in common law and can do work and be paid for it in that capacity. This is true no matter what sort of work is done or how it is rewarded.

However, company directors who also have employment contracts will need to be paid the NMW for work done under that contract. If a company director is unsure whether they have entered into an employment contract with their company they may wish to take independent legal advice.'

I was okay with that until I got paragraph 2.

As for WTC am not sure how they'd apply to company directors. I do know that my client was receiving single persons job seekers allowance.

Doug7

dir re

maybe they should reg for PAYE before the end of year and be paid about £5800 so as to have a qualify year for earnings related pension 1 of 30 years

Monsoon

jilt wrote: »

This disturbed me, as he wasn't paying himself a wage through PAYE even when he was 'working' so how does he prove how many hours he is or isn't working?

Mostly they take your word for it. They would only look for proof if they were investigating.

'The NMW does not apply to company directors unless they also have contracts that make them workers. Company directors are office holders in common law and can do work and be paid for it in that capacity. This is true no matter what sort of work is done or how it is rewarded.

However, company directors who also have employment contracts will need to be paid the NMW for work done under that contract. If a company director is unsure whether they have entered into an employment contract with their company they may wish to take independent legal advice.'

I was okay with that until I got paragraph 2.

Quite. I am sure I read somewhere that if someone is being remunerated by sal/divs, as long as they declare divs as income (which iof course it is) and as long as they don't restrict the dividends to artificially make income lower (anti-avoidance provision), i.e. if the company can afford to pay a market value remuneration package, it doesn't matter if it's salary or divs as long as it's being paid for work done.
Again, I can't remember where I read this and I really do need to find out.

A workaround would be to pay NMW for 16 hours a week and just get the 16 hours element. (or have a 'hobby trade' as self employed to top up to 30 hours a week!)

Could you have NMW salary and then work the remaining 14 hours for the dividends? Would that work? The other 14 hours would not be in the employment contract....

As for WTC am not sure how they'd apply to company directors. I do know that my client was receiving single persons job seekers allowance.

Cannot receive WTC and JSA - one is over 16 hours one is under 16 hours.
I think JSA doesnt have the NMW requirements. I really do need to go back and read up on this. If he was working under 16 hours he can claim for JSA but would have to declare that he was working (and presumably earning nothing).

Doug7 wrote: »

maybe they should reg for PAYE before the end of year and be paid about £5800 so as to have a qualify year for earnings related pension 1 of 30 years

Yes, if he is not using his personal allowance elsewhere, it may well make sense (and be far more tax efficient) to pay the standard 5715 salary. Need to look at the interaction between all of this and WTC though.

All this is beside the point if he is caught by IR35!

jilt

Thanks guys for you comments, I feel a headache coming on!

Monsoon

jilt wrote: »

Thanks guys for you comments, I feel a headache coming on!

The joys of limited companies!