Paying yourself through a Ltd as a subby

[Shane Mullan]

When starting out subbying, a few people suggested to me that I should start out as ltd. As I would already be paying agencies/umbrellas £20 a week to receive my wages (£1040~ a year) it would work out cheaper to go Ltd and pay an accountant. Subsequently I had a meeting with an accountant and incorporated my company in March 2018, went self-employed and got my UTRs/CIS registered. My accountant tells me that I should just be paying myself from the company as self-employed – that I can just withdraw money from my business bank account whenever I want as “who is there to question me?” (his words).

I have been paying my accountant every month and very rarely has he ever been forthcoming with offering any advice.

With the end of my financial year approaching I am starting to worry about my company tax return. Up until this point I have just been withdrawing cash from my Ltd bank account but I have read a few places mentioning monthly EPS returns? I have not done any of this?

I suppose at this point I am just confused about the whole thing and not getting anywhere with my accountant. I have already paid him a years’ worth of accounting so it would be very hard for me to go and pay another accountant just for end of year return, it would effectively be paying twice.

TL;DR - I wonder how other subbys are paying themselves from their ltd company?

 

[netblindpaul]

Why are you subbing to your own Ltd. Co. why not just be employed by it as the sole director?
I'm a one person Ltd. Co. I don't have a UTR nor am I involved with CIS.
I am employed PAYE by the company, I get a payslip monthly from the accountant, because they do the wages for me as part of the service.
The wages are then transferred from the company account into my personal account.
However, as you say, I can take money from the company at any time, I just need to be able to justify that to HMRC.

 

[Deleted member 26818]

There are a number of ways to pay yourself from a Ltd. Co.
One is where you pay yourself a minimum wage, pay tax, NI and employer’s NI on that wage then pay what’s left over as a dividend.
Another method is to pay yourself below the threshold for tax and NI then pay the rest as a dividend. (Not sure how legal this is, as it would probably work out less than the minimum wage.)
Another method is to not pay yourself at all, and just pay yourself a dividend. (Again not sure how legal this would be, as it would likely be seen as tax avoidance.)
Finally, you can pay yourself as a subby.
On paper you pay yourself the gross amount paid by the agency, deduct the 20% CIS tax, then at the end of the year offset the CIS tax deducted by the agency against the tax you recorded on paper as being deducted from you by your Ltd. Co.
All of the methods involve you supplying a set of accounts to Companies House, submitting a return for Corporation tax, another return for PAYE/CIS and filing a Self Assessment.
Also your Ltd Co. is required to notify monthly how many employees it has.

 

[chris day]

Are you supplying materials at cost to yourself or just labour, if you are supplying labour only you could fall under IR35 rules.

IR35 and dividends
If you enter into contracts to provide professional services to clients via your limited company (typically as an IT contractor), you may be aware of a piece of tax legislation called IR35.

If your contract work is caught by IR35, you will have to draw down the bulk of your company’s income in the form of a ‘deemed salary’, after allowing for a fixed 5% ‘administration allowance’ for the costs of running the company. Please note that if your contract is with a public sector organisation, you can no longer claim this allowance.

You will have to pay full PAYE income tax and NICs on this deemed salary – at the same rates paid by permanent employees.

So, if you do work as a limited company contractor, you should make IR35 compliance a key priority, as the financial consequences should you be caught are significant.

 

[Deleted member 26818]

If you are operating as a sub contractor supplying labour only for most of the jobs HMRC will bolt you to the fence post if you are caught.
Check with an accountant first

Don’t quite understand what that means?
The majority of my work is supplying labour only through agencies, just the same as all the other sparks who work via agencies.
Not noticed the HMRC getting the spanners out yet.

 

[Boing89]

There are a number of ways to pay yourself from a Ltd. Co.
One is where you pay yourself a minimum wage, pay tax, NI and employer’s NI on that wage then pay what’s left over as a dividend.
Another method is to pay yourself below the threshold for tax and NI then pay the rest as a dividend. (Not sure how legal this is, as it would probably work out less than the minimum wage.)
Another method is to not pay yourself at all, and just pay yourself a dividend. (Again not sure how legal this would be, as it would likely be seen as tax avoidance.)
Finally, you can pay yourself as a subby.
On paper you pay yourself the gross amount paid by the agency, deduct the 20% CIS tax, then at the end of the year offset the CIS tax deducted by the agency against the tax you recorded on paper as being deducted from you by your Ltd. Co.
All of the methods involve you supplying a set of accounts to Companies House, submitting a return for Corporation tax, another return for PAYE/CIS and filing a Self Assessment.
Also your Ltd Co. is required to notify monthly how many employees it has.

Remember tax avoidance is perfectly legal, it’s tax evasion that isn’t. We all avoid paying tax when we can, if you pay into a pension the tax relief you get from HMRC is a form of tax avoidance for instance.

 

[Shane Mullan]

Why are you subbing to your own Ltd. Co. why not just be employed by it as the sole director?

That's how I thought it should be, just pay myself a salary of £8,424 and the rest in dividends, and honestly I am much preferring this option as it seems the most 'legit'.

Also your Ltd Co. is required to notify monthly how many employees it has.

I suppose this is something I might be getting a fine for.. I did say to my accountant about EPS but he told me not to worry as it "doesn't apply"

Chris, in regards to IR35 I am pretty clued up - it has affected many of my friends in the healthcare industry. When subbying I have noticed a few agencies try to trick you into signing documents declaring yourself within IR35 etc, but most have been happy to accept alternative confirmation of arrangements. It is definitely someone everyone should be aware of

 

[Taylortwocities]

Sack your accountant and get one who will advise you properly. There's no point paying him and then having to ask an Internet forum for guidance.

 

[Anthony S]

Limited companies have to work in real time, monthly declarations to hmrc ie people wages including deductions etc.

You can have your salary, then corporation tax is paid on company profits then you can take £2,000.00 in dividends then anymore and your taxed on them on a personal level.

Your company pays corporation tax then at a later date you receive a personal tax bill for any dividends.

Also hmrc are looking at people who supply labour only being the only employee of the company they are a director for. Hiding behind a limited company to avoid NI and more Tax. Basically falling foul of the IR35.

 

[PEG]

I would wholeheartedly second the motion to flirt your accountant,based on the fact he is not acting like one...

If you are happy to pay him for doing nothing,then it is not an onerous stretch,to give HMRC extra monies....at least they give us the occasional,cringy advert...

 

[Nigel]

Don’t quite understand what that means?
The majority of my work is supplying labour only through agencies, just the same as all the other sparks who work via agencies.
Not noticed the HMRC getting the spanners out yet.

Basically it is illegal to pay a sub-contractor in a way that would amount to PAYE in normal circumstances. I know the construction sector does this a lot but it is illegal.

A labour only sub-contractor that is not supplying materials and would not go back and put correct work that was wrong from their own pocket should be employed on a PAYE basis. If not, that employmeny is unlawful.

 

[rolyberkin]

It sounds like you are paying yourself regular dividends as a company director not as a subby, don't see why some are saying that your accountant is wrong, as long as you are making a profit you can pay yourself dividends, you will just end up having income tax liability (minus allowances) on any dividend received over £2k at the end of the year. This is for your accountant to sort out at year end. Dividends do not however count as business costs when considering corporation tax. You should be keeping relevant dividend vouchers for all payments. All sounds fine to me.

 

[Toneyz]

HMRC now want payment on account upfront.

 

[rolyberkin]

HMRC now want payment on account upfront.

Isn’t that for corporation tax? The tax liability on dividends paid is personal tax?

 

[plugsandsparks]

They may indeed want it but they are not entitled to it. As i kindly explained to them when they tried it on me