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BenOsu
05-06-2010, 10:42 PM
I am thinking of starting up a social enterprise...in fact i am starting one up. I have nearly finished the business pann and have highlighted a source of funding to get started. Out of that funding I would pay my self a salary. Its a social enterprise so i wont be taking any shares.

To avoid employers NI etc. could i invoice the company every month as free lance and pay my own tax and ni?

BenOsu
06-06-2010, 08:53 PM
WOW - so many veiwings but no one offering advice.

Admin Tones
06-06-2010, 09:32 PM
Not sure what to suggest.
Sorry.

carolinem
07-06-2010, 01:14 PM
It depends on whether you are being a sole trader (in other words you are the business) or whether it is a limited company and therefore an entirely separate entity from you.

Best advice: find a friendly accountant who can offer a free consultation and explain what the best way of setting you given your particular circumstances.

missfituk
10-06-2010, 06:17 PM
KoOSK - he can invoice himself if the business is a ltd company and he is contracted by the company. You would have to check with an accountant if this is okay for a Director to do, it may be that if youre a Director you have to be an employee, and cannot be a contractor. Or if someone else was the Director, then they could invoice you for your time as a self employed consultant of that company and you would then just submit a self assessment - deducting all your expenses off your invoice from the company.

Or you can set up as a sole trader and just take a wage as and when you require and when the business can support it.

bill mccallum
11-06-2010, 10:38 AM
I am thinking of starting up a social enterprise...in fact i am starting one up. I have nearly finished the business pann and have highlighted a source of funding to get started. Out of that funding I would pay my self a salary. Its a social enterprise so i wont be taking any shares.

To avoid employers NI etc. could i invoice the company every month as free lance and pay my own tax and ni?

The social enterprise can be set up with a formal or informal constitution and a company limited by guarantee does not have share capital, but these are not relevant issues to the question.

If you have only one employer (e.g. the social enterprise in question) then you can't invoice as self-employed (unless very special circumstances exist) the test is based on advice from HMRC.

See http://www.hmrc.gov.uk/calcs/esi.htm

BenOsu
11-06-2010, 07:31 PM
Thanks guys. that what i was looking for. as the company would a seperate legal entity so would not be me. ive set up a meeting with business link and i am exploring further options.

does anyone know how much employers tax and ni is - just generally?

D9ENTERTAINMENT
12-06-2010, 09:53 AM
You couldnt put yourself down as freelance to the company, as im guessing you are going to be involved with the company pretty full on, The rules may be different with a social enterprise however with a limited company there are a lot of rules as to who can be classed as freelance i believe its on the Tax website.

However either way your going to have to pay tax and national insurance, i would think it would be easier to have it just come off of your pay each month saves all the hassle of calculating how much ni and tax you owe at the end of the year.

But check out the Tax website and get some advice from there. Met one of the people from there on a course this week and they are very nice and helpful.....I was surprised lol

D9ENTERTAINMENT
14-06-2010, 02:19 PM
You can only have your NI and tax deducted on a month by month basis if you are an employee of a limited/plc company. If you are a sole trader it is impossible to calculate your true income each month hence why you cannot specify a wage.

if you want to calculate roughly what you will pay in tax you can do this at the end of each month working on the very rough figure of 20% for tax. So if you make 2000 a month its roughly 20% for tax so 400.

NI is (i think) a fixed amount around 14 a month if you are a sole trader


KoOsk - i think he said he would be starting a social enterprise which would see him on the board of directors which would be mean he would be paid as a director and his tax/ni dealt with already by the company, so wouldnt be able to work freelance for the business and the pay himself as freelance.

I may be wrong however i think for the best advice you should always check with the sites and organizations that are responsible for this type of company and the rule and regulations set out by HMRC

missfituk
14-06-2010, 05:57 PM
Note sure if you read my whole post but that is exactly what I said - If the company is limited then everyone including the "owner"/"founder" is an employee.



This doesn't make sense - Sure you can "take a wage" when you are a sole trader but it doesn't matter how much you take out and how much you leave over in the business YOU personally as the "sole trader of the business" will get taxed on 100% of the profit that you make in the year. For example lets say as a sole trader you bring in 50,000 profit but you only "take out" 20,000 and plan to use the remaining 30,000 for business growth - Dispite this you will get taxed on 50,000 hence why it doesn't make sense to take out a wage.

Plus you can't declare a wage when you are a sole trader because your net profit is your wage no if buts or maybe's. You are confusing the matter by making referrence to a business when talking about being a sole trader. The key thing to remember is that when you are a sole trader or partnership there is no "Business" in its own entity - You are the business/the business is you.

Its all gotten way to complicated and indepth - All that needs to be said is - If you are a limited company you are an employee of the business and can therefore specify a wage. If you are sole trader the entire net profit is your wage and there is no "Business", YOU are the business.

Yes thank you, Im not an idiot, I know you can take as much/little as you like as a sole trader but as a Social Enterprise he may not want to take all the profits just because he can...

As for being a ltd company, actually he could have someone else as the owner/director (his mum, friend, sibling) and be contracted out as a consultant- meaning that it is tax efficient for the company as the whole invoice is deductible from turnover, whilst at the same time, he personally pays little/no tax on the income because its self assessment and he can deduct all his expenses off it until theres nothing left.

BenOsu
15-06-2010, 04:04 PM
WOW - Sorry for causing any commotion. Than you for all the replies though, they have been helpfull and are appreciated.

bill mccallum
15-06-2010, 04:06 PM
Am I being stupid here and missing a valid point or are people posting pointless posts.

its simple if your a sole trader you get taxed on your total profit.

If your limited the employees get taxed individually then the business gets taxed on the reamining profit.

So - Why on earth would a 1 man band want to do anything other than be a sole trader??? - What relevance is it for his sibling/mother/partner to be the director of the business when they will get taxed and the business will get taxed and then Benosu will also get taxed. Not only that setting up a business as Ltd in his siblings/mothers/friends name will incur more costs as you need to submit accounts yearly which means having to pay out for an accountant.

I am no longer posting on this matter as its getting out of hand - The best thing Benosu can do is be a sole trader, keep reciepts for EVERYTHING and claim back everything business related then pay the tax on the remainder.

original question...

Paying my self
I am thinking of starting up a social enterprise...in fact i am starting one up. I have nearly finished the business pann and have highlighted a source of funding to get started. Out of that funding I would pay my self a salary. Its a social enterprise so i wont be taking any shares.

To avoid employers NI etc. could i invoice the company every month as free lance and pay my own tax and ni?
--------------------------------------------------------------------------------------------------------------------------
Your response about being a sole trader is not relevant, so little point getting frustrated with other replies, yours is simply wrong.

As I pointed out in my reply, the issues around having a sole employer is the key issue for the OP, this would make him/her an employee, apart from exceptional circumstances and he.she should refer to HMRC to ensure it's set up correctly from the start.

As a former Director/Chairman of a large social enterprise, I would be happy to offer advice if the OP wishes to contact me personally.

missfituk
15-06-2010, 08:06 PM
Am I being stupid here and missing a valid point or are people posting pointless posts.

its simple if your a sole trader you get taxed on your total profit.

If your limited the employees get taxed individually then the business gets taxed on the reamining profit.

So - Why on earth would a 1 man band want to do anything other than be a sole trader??? - What relevance is it for his sibling/mother/partner to be the director of the business when they will get taxed and the business will get taxed and then Benosu will also get taxed. Not only that setting up a business as Ltd in his siblings/mothers/friends name will incur more costs as you need to submit accounts yearly which means having to pay out for an accountant.

I am no longer posting on this matter as its getting out of hand - The best thing Benosu can do is be a sole trader, keep reciepts for EVERYTHING and claim back everything business related then pay the tax on the remainder.

If youre a one man band then you must be a sole trader, do I read you correctly??!! I am, as you put it a "one man band" and I am a company - I supply my product to House of Fraser, ASOS, Rigby & Peller and BeCheeky.com - trading as a sole trader is inconceivable. There are many reasons people become Ltd - to avert personal risk, for credit purposes, contractual reasons, image... there is absolutely no reason why a "one man band" outfit should not be a ltd company.

You are clearly showing your ignorance on taxation - he would want his mother/sibling/friend to be director because that would enable him to legally be a contractor. The director can quite legitimately have no salary and earn nothing, thus making no personal tax impact to them or their own circumstances. The OP would then invoice the company, say 300 a day ball-park, that 300 is deducted straight from company turnover thus reducing the company's corporation tax liability.

The OP is then self employed as a contractor because his mum officially owns the company on a technicality, and would submit a SA tax return, deducting his mileage @40p a mile, stationary, travel, dispursements, mobile phone, electric, rates, car parking, entertaining, hotels.... the kitchen sink..... and thus pays no tax either.... as opposed to taking a 20,000 salary as a company employee and paying 4000+ a year in income tax and NI.

Working as a sole trader is of course the simplest way forward, but this may not be appropriate for his business - hard to say without knowing who the clients are or what the business is

D9ENTERTAINMENT
16-06-2010, 11:21 AM
Ok this is ridiculous to the person who asked the question i suggest the best thing for you to do would to google about social enterprise , also contact HRMC about your tax.

http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1077475650
http://www.netlawman.co.uk/info/social-enterprise.php
http://www.businesslink.gov.uk/bdotg/action/layer?site=210&topicId=5000811521

in future try googling stuff before asking about it on here

James Smith
17-06-2010, 01:30 PM
Koosk,

I dont like to get into heated debates on boards, but from a factual point of view a trading Limited Company (run correctly with a low salary/high dividend strategy) will pay considerably less tax overall than a sole trader. I am not sure why you seem to think it would be the other way around, its possible you had a personal service company inside IR35 which is quite different to how normal trading business are taxed as all the income is treated as a salary.

My generic advice is trade as a sole trader to test the business model, and then evaluate structure if you start to make some unless there are very persuasive reasons to go limited from day one. The costs of running a limited company are not insignificant, and generally unless you make at least 25-30k per annum tax reasons only wont be enough to incorporate.

It does look like you have been dog piled a bit here by some quite aggressive posts, but the other posters may well have made some relevant points too so it might be worth being open to their points of view.

Regards,

bill mccallum
17-06-2010, 02:04 PM
Why am I getting a mental picture of rattles being thrown out of prams....

I will try and leave out the rude comments about other members, so here's a quick reply to some of your points...

(a) "You only create a business when it is setup as Ltd or PLC. A sole trader or partnership technically isn't a business it is a trading name for a individual offering a service."

You really do need to think before typing....BUSINESS - The etymology (http://www.shell-livewire.org/wiki/Etymology) of "business" relates to the state of being busy either as an individual or society as a whole, doing commercially viable and profitable work.

(b) "please can I ask why his clients would have an impact on whether he sets up as a sole trader or as a ltd company?"

... its amazing that on a forum where most of the members are young people that you have to ask this question. When a business gets a cold-call sales pitch from a 17 year old web designer with a bicycle for transport and the same pitch from a Limited Company with a registered office, who do you think gets the job? I would like to say the young enterprising person, but reality stinks and its usually the opposite.

(c) As for D9Media I do not know why you are attempting to make a direct attack against me regarding the post I made refference to Sole Traders and Ltd etc. The post I made was relevant to to the original question of "To avoid employers NI etc. could i invoice the company every month as free lance and pay my own tax and ni?".

If you read the post again, it states that the OP is starting a social enterprise and directly refers to "the company". The context of which means that he/she will almost certainly be classed as an employee for tax purposes.

(d) I find it very hard to believe that coincidently you are a top Director/Chairman of a large social enterprise when just a few months ago I recall you scrounging for a low cost website to be developed for your D9 Media project that appears to have not taken off, I wonder why!.

If you review the posts I think you will find that I was the person who made the reference to being a "Director/Chairman of a large social enterprise"

If you care to do some research, you will find that I was a founder Director of Grove Hill 2000 Limited in Middlesbrough (1996/97), became Chairman of the Board in 1997/98 and Chairman of Grove Hill 2000 SRB Partnership Board in 1998/99. I was Finance & Monitoring Officer in 1997/98 and then Team Leader for Finance, SRB Delivery and Business Development, taking the lead in delivering a 10 million regeneration project, from inception to delivery.

Which was a large scale social enterprise.... I too wanted to limit my exposure to tax and NI (and reduce the companies exposure to emploers NI), I set up a separate company and invoiced for my time as any service provider would do, but HMRC decided that this was inappropriate and that I was "an employee". So my advice to the OP was based on very personal experience in this sector.

Can I suggest that you restrict you replies to areas of experise rather than your own perception of what is right and wrong.

Bill


Once again it appears you are having a hard time reading simple posts. I haven't once said that if you are a "One Man Band" that you MUST be a sole trader by all means you can setup a Ltd Company but my point exactly was "Why would you want to incur more costs such as accountancy fees, companys house registration fees etc by setting up as a ltd company???".

Yes I completely understand a Ltd company to some extent eliminates the risk of you personally not being liable for things like the companies debts. However; 1) As an employee of a business you will pay more NI and Tax than you would a sole trader as the company would pay out NI and Tax on your behalf then you as an employee would also pay out NI and Tax, therefore if its your business you will be paying out far more than what is necessary. 2) the law is changing/has changed where to some extent the directors of the business are made reliable for debts and can be directly targetted as a result of none payment.

Your lame attempt at names dropping didnt impress anyone. By the sounds of things you are a "sole trader" running a E-Commerce store, and the common mistake you are making is that just because you have a company name, logo, website etc it doesnt make it a business. You only create a business when it is setup as Ltd or PLC. A sole trader or partnership technically isn't a business it is a trading name for a individual offering a service.

Also please can I ask why his clients would have an impact on whether he sets up as a sole trader or as a ltd company? - I think you need to go away and read up on business and the difference between Ltd and none Ltd.

As for D9Media I do not know why you are attempting to make a direct attack against me regarding the post I made refference to Sole Traders and Ltd etc. The post I made was relevant to to the original question of "To avoid employers NI etc. could i invoice the company every month as free lance and pay my own tax and ni?". In reply to this I was offering by advice based on my experience in business therefore my post was not irrelevant. I find it very hard to believe that coincidently you are a top Director/Chairman of a large social enterprise when just a few months ago I recall you scrounging for a low cost website to be developed for your D9 Media project that appears to have not taken off, I wonder why!.

It is very worrying that such pointless feedback from so called "business men and women" on this post has been provided.

Just to close my post on something relevant to the original question - I would recommend doing no other than setting up as a sole trader as you will find you will pay out less and will also pay minimal NI and tax. Seen as they say the majority of all business make a loss in their first year I wouldnt even worry about paying yourself a salary yet, get through the first year, see what profit you did or didnt make then decide on your approach to the next year. personally I would not even consider starting up as a Ltd company until you have been trading for a while or unless you employee staff.

bill mccallum
17-06-2010, 04:12 PM
The reality of age discrimination is no a figment of imagination, its a reality. Just because you have had some good experiences does not mean most other young people have not (I know I did when I started my first business).

But you still fail to see the point...the OP said

"Paying my self

I am thinking of starting up a social enterprise...in fact i am starting one up. I have nearly finished the business pann and have highlighted a source of funding to get started. Out of that funding I would pay my self a salary. Its a social enterprise so i wont be taking any shares.

To avoid employers NI etc. could i invoice the company every month as free lance and pay my own tax and ni? "

The specific question is related to charging the social enterprise, not about being self-emplyed -v- Ltd company.

The reply I offered is accurate and the stance that HMRC will take will probably reflect that, put simply if you only have one employer, you are an employee.

Given the very specific post "I am thinking of starting up a social enterprise...in fact i am starting one up", it is clear that the OP is the principal in the social enterprise and this would further establish his role as an employee.


Can we now put an end to the rattle throwing?




"... its amazing that on a forum where most of the members are young people that you have to ask this question. When a business gets a cold-call sales pitch from a 17 year old web designer with a bicycle for transport and the same pitch from a Limited Company with a registered office, who do you think gets the job? I would like to say the young enterprising person, but reality stinks and its usually the opposite."

Clear you are being sceptical towards the way in which a sole trader can operate, Firstly the age of the "Business Owner" or "Sole Trader" has no impact on closing a deal with a client, At the age of 16 I was out meeting clients and closing deals with large businesses. Where I slightly agree with you is the location of the business, However in a face to face meeting with a client the "17 year old sole trader" working from his bedroom can put into his pitch that there is no real reason to pay out for an expensive office just to make a statement. I operated for over 4 years in an "office" in my home and had over 6 clients on my books whilst running one of the West Mildands biggest and busiest car modification forums at the age of 16/17. Not only that the "17 year old sole trader" could simply buy into "Virtual Offices" which would give the impression he/she was operating for a corporate location in the centre of a busy city with the end client none the wiser. I would highly recommend you reading entrapenaurs books such as James Caan and Duncan Banatyne who clearly state that buying expensive offices to make a statement is the common mistake any new business makes as it is not necessary, and in fact James Caan successfully established his business from a cloak room on a well recognised london street because it enabled him to "trick" people into believing he was running a well established high end business right from day one.

- Also I really dont dont understand why people are trying to make attacks at me for answering the posters original question whilst also providing possible other suggestions to how he can establish his business. I merely done exactly what almost everyone on this forum does and provided feedback on his question with alternative solutions - In my opinion it would best to setup as a Sole Trader for the first few years and then as the business grows and he begins to employ more staff then look to move into a limited company.

missfituk
17-06-2010, 08:17 PM
Once again it appears you are having a hard time reading simple posts. I haven't once said that if you are a "One Man Band" that you MUST be a sole trader by all means you can setup a Ltd Company but my point exactly was "Why would you want to incur more costs such as accountancy fees, companys house registration fees etc by setting up as a ltd company???".

Your lame attempt at names dropping didnt impress anyone. By the sounds of things you are a "sole trader" running a E-Commerce store, and the common mistake you are making is that just because you have a company name, logo, website etc it doesnt make it a business. You only create a business when it is setup as Ltd or PLC. A sole trader or partnership technically isn't a business it is a trading name for a individual offering a service.
.


Clearly I have some competition for the beligerant and blunt reputation.... seriously, you're welcome to it....

I have no interest in furthering some personal debate, only to state that my company (No, I am not a sole trader as you insist above - clearly Im not the only one who cant read a simple sentence) is certainly not an e-commerce website!! lol! We are manufacturers and wholesalers of several brands - Miss Fit UK, 2wenty8, SlinkyDip, Bourgeoisea and Terminal Velocity, which are supplied to high street chains. Naming these brands was certainly not an attempt to impress anyone, but merely give an identifiable indication of our sales orders (one order, for one brand, from one high street chain is between 7,000 and 20,000 units), in a company run by one person. Yes we have a website where people can buy our products too, but we are primarily manufacturers/wholesalers - the website is just a sideline e-commerce shop which trades as a separate business entirely and accounts for less than 10% of overall turnover.

As for stating that you dont have a business until you are a ltd comapny is just ridiculous. I also own Lancaster Playschemes (www.lancasterplayschemes.co.uk (http://www.lancasterplayschemes.co.uk)) which is an OFTSED reg childcare facility run as a sole trader, and I certainly wouldnt call it a service run by me the individual! I never set foot in the place, I have 11 staff who run it and in every sense of the word I would call it a business, its legal structure is wholly irrelevant

lordlancaster
18-06-2010, 09:54 AM
This thread is temporarily closed to let everyone take a breather and calm down. Some good points made by all, but no need to get personal with each other... ;)