Director's Payroll

Chinless Wonder

Hi folks

I'm helping some friends who have received funding for a theatre show, and have formed a limited company to produce the show (a condition of their funding).

They (a married couple) are the directors of the company and have incorporated as a limited co with share capital. They are also both self employed individuals (and have been submitting their own SA returns for some time). Neither of them earns enough to pay 40% rate tax.

Their budget for the show includes a fee for each of them for their creative contribution to the project (as writers/ performers - which is what they do self employed). The fee is fairly low (ie below £7k). They don't expect to make a profit (ie - they are not anticipating a dividend payment).

My question: do they NEED to set up PAYE for themselves through the Ltd co? as they're both self employed - could they just declare their FEE from the Ltd co on their SA form?

Personally I would suggest to them that they do set up PAYE and each get a BR tax code - essentially as a prepayment method for their other SA tax.

Interested to hear views.

jamesm96

My personal opinion would actually be not to set up a PAYE scheme.

If they did set up a scheme to pay themselves, they'd each receive £3,500 through PAYE which (by virtue of their self employed income utilising all of their Personal Allowance) will be taxed at the Basic Rate of 20%.

You mention that they don't expect to make a profit, but presumably if the accounts don't show the expense of their salries, there'll be at least a £7,000 profit in the company? (If not, it's a loss making project in which case you have to wonder why they're bothering?)

On the assumption that there's a £7k profit after removing director's remuneration, they can then pay themselves a dividend of £3,500 each which will suffer no personal tax. The company will pay tax at the CT rate of 20%.

So, they pay exactly the same amount of tax but save themselves the hassle of having to register and operate a PAYE scheme and all the hassles that brings.

Chinless Wonder

jamesm96 wrote: »

My personal opinion would actually be not to set up a PAYE scheme.

If they did set up a scheme to pay themselves, they'd each receive £3,500 through PAYE which (by virtue of their self employed income utilising all of their Personal Allowance) will be taxed at the Basic Rate of 20%.

You mention that they don't expect to make a profit, but presumably if the accounts don't show the expense of their salries, there'll be at least a £7,000 profit in the company? (If not, it's a loss making project in which case you have to wonder why they're bothering?)

On the assumption that there's a £7k profit after removing director's remuneration, they can then pay themselves a dividend of £3,500 each which will suffer no personal tax. The company will pay tax at the CT rate of 20%.

So, they pay exactly the same amount of tax but save themselves the hassle of having to register and operate a PAYE scheme and all the hassles that brings.

Thanks James

I wasn't very clear in my original post, sorry.

The reason they've set up a ltd is purely because it's a condition of their funding for a theatre project.

They're getting £40k for the project; one of them is a writer and one is a composer - they are each recieving an artists fee which is under £7k (I think one of them is £6k and the other £4k). The remaining £30k is all allocated to be spent on other aspects of the project. So the remaining profit of the company is nil. Assuming they don't overspend! And if there was a profit, I'm not sure if they'd be able to take it as a dividend (dependent on the funders conditions)

Because each of them has a role in the project that is separate to them being directors, I was wondering if it is acceptable for each of them to just invoice the company for their fee (in which case it goes on their SA forms as usual).

And also I was wanting to know if Directors *had* to be paid through PAYE, even if their earnings were very low.

It would certainly suit me to not have to run a PAYE scheme for them!

Monsoon

Chinless Wonder wrote: »

And also I was wanting to know if Directors *had* to be paid through PAYE, even if their earnings were very low.

Usually yes but there are a few situations where they don't have to. If they run a separate business and invoice the Ltd as a consultant then they can put the income through their personal business. I think this meets that criteria.

Chinless Wonder wrote: »

It would certainly suit me to not have to run a PAYE scheme for them!

Absolutely!!