Director of limited company - employed or self employed

[Sparkysea]

Evening
Just want to check if you own and are the sole director of the company are you employed? rather than self employed?

Cheers all
Sparky

[plasticpig]

You would be employed.

[Sparkysea]

Thanks plastic pig

[Sarnie]

An Accountant will tell you that you are employed, which is technically correct.

A mortgage lender will tell you that you are self employed as you own over 20% of the company.

[Piersman2]

I used to worry about this years ago, now I just class myself as employed, by my limited company.

[Sparkysea]

Yes but to tax man I'm employed, right?

[Boshly]

Depends on your contract of employment if you have one, your directors service agreement and how you pay yourself.

[Sparkysea]

Does it really matter? I'm doing my self assessment (so have to put employed or self employed) and time is getting away. I haven't given myself a contract...

[Mandat]

Boshly said:

Depends on your contract of employment if you have one, your directors service agreement and how you pay yourself.

I've always understood it that if you get paid (even partly) via PAYE, then you are technically an employee.

[plasticpig]

Sparkysea said:

Yes but to tax man I'm employed, right?

Yes.

[Eric Mc]

Sparkysea said:

Yes but to tax man I'm employed, right?

Not quite.

You are an "officer" of your company so any remuneration you receive from the company will be deemed to have been because of the fact that you are an officer, not an employee.

It just so happens that officers of companies are taxed under the PAYE system just like employees.

On the other hand, the NI rules treat directors slightly differently to employees.

In most cases, this fine distinction is of no real consequence. But the advent of Auto Enrolment for pensions makes this distinction very important.

[pc.iow]

Mandat said:

Boshly said:

Depends on your contract of employment if you have one, your directors service agreement and how you pay yourself.

I've always understood it that if you get paid (even partly) via PAYE, then you are technically an employee.

Just 'ask' your company to loan you some money each month?

[Eric Mc]

And would the loan be repaid?

Loans to directors are heavilly regulated under both the PAYE Benefit in Kind rules and Section 455 Corporation Tax rules.

[Boshly]

pc.iow said:

Mandat said:

Boshly said:

Depends on your contract of employment if you have one, your directors service agreement and how you pay yourself.

I've always understood it that if you get paid (even partly) via PAYE, then you are technically an employee.

Just 'ask' your company to loan you some money each month?

As Eric says this can open up a can of worms.

My understanding is that you should have both a contract of employment and a directors service level agreement clearly showing your responsibilities (in both) and from this you can be remunerated both as an employee and an officer of The company (your directorship) and of course benefit from bonuses (as a an employee) and dividends as appropriate; this won't necessarily be suitable for every scenario I guess but in general covers many bases, tax efficiency being only one of them.

Op yes you do have a contract of employment you just haven't put it in writing yet I guess. I would also suggest get some advice to suit you from a capable and knowledgeable advisor.

[Eric Mc]

Be very careful about asserting whether a "Contract of Employment" exists between the company and the director. The Pension Administrator has stated categorically that, if a Contract of Employment exists between a director and the company, then the company MUST set up an auto enrolement pension scheme for that director. If they don't they are breaking the law and will be open to prosecution.

Just because a director receives a salary from a company does not automatically mean that a contract of employment has to exist between the company and the director.

Thread VERY carefully here.

[swatches]

If you are doing your self assesement, a Director needs to fill out the employment section if they have received income from the company.
i.e. if you have a P60 or P45.

See page 2 of the tax return guide SA150.
https://www.gov.uk/government/publications/self-as...

Edited by swatches on Thursday 26th January 09:42

[Eric Mc]

swatches said:

If you are doing your self assesement, a Director only needs to fill out the employment section if they have received income from the company.
i.e. if you have a P60 or P45.

See page 2 of the tax return guide SA150.
https://www.gov.uk/government/publications/self-as...

To clarify - they need to complete the Employment Section of the Tax Return if you have any income or emoluments from the company that need to be included in this section.

This includes not only salary but also details of Benefits in Kind.
It is also the area where a director or employee will need enter any "Expenses in Employment" they may want to claim.

If the director is also a shareholder (pretty much the norm for smaller owner managed companies), then it is highly likely that they will also need to complete the section of the tax return that deals with dividend income.

Directors can sometimes also receive income from their own company in the form of rental income or interest income. Any amounts such as these need to be entered in the appropriate section of the Self Assessment tax return.

[UpTheIron]

Sparkysea said:

Yes but to tax man I'm employed, right?

Not necessarily. It's pretty unlikely you are self employed. However you might not be employed either. We don't have enough information.

Do you withdraw any money from the Ltd company that you an a Director of? How is this money withdrawn? PAYE? Dividends?

What does your accountant say?

You are 100% clear that the company funds are not the same as your funds don't you?

[mjb1]

There are 3 significant/relevant roles with ltd companies:

Director,
Shareholder,
Employee.

The three are mutually exclusive - you could be only one of them or all 3. If you are drawing a salary PAYE, then you are an employee (for tax purposes), regardless of employment contract or whether you are a director. If you receive a dividend, you must be a shareholder. It's usual to draw funds as a combination of both, but it's technically possible to receive only a dividend and no salary, and then you wouldn't necessarily be an employee for tax purposes.

Eric Mc said:

Be very careful about asserting whether a "Contract of Employment" exists between the company and the director. The Pension Administrator has stated categorically that, if a Contract of Employment exists between a director and the company, then the company MUST set up an auto enrolement pension scheme for that director. If they don't they are breaking the law and will be open to prosecution.

Just because a director receives a salary from a company does not automatically mean that a contract of employment has to exist between the company and the director.

Thread VERY carefully here.

I was under the impression that auto enrolment only applies if more than one director has an employment contract? So a sole director is exempt either way, more than one director with an employment contract and you become liable for auto enrolment.

[Sparkysea]

Yes I am clear I do not own company funds. I receive money by PAYE and dividends. Accountant says I am employed by company. I understand as company "does not employ anyone other than a director" pension enrollment is not required