Supplies Engineers to Charities and some other suitable not for profit
groups at no cost. Takes charitable donations in the form of hardware
and service discounts from not for profit Limited Companies. The NfLtd.
companies declare and deliver a discount off their list prices in order
to gain tax credits for charitable work.
NfLtd.
Great play is being made these days of in particular IT companies, that
are "Disguised Employees" of other companies. This all springs, I am
lead to understand, to the fact that if you are a director of your own
one man company, you can pay yourself whatever dividend you like and
get away with tax. instead of paying for your earnings through PAYE,
you pay through corporation tax. Depending on how you play the sliders
you can pay a lot less tax than someone on a purely PAYE based income.
So if a company was to make a formal board declaration that it would
never give out a dividend ever again, that would cease to be an issue.
The company recieves an income from whatever work it does and invoices
through the normal chanels. It pays whatever VAT is required based on
the invoices. It pays the people who earn money from it in the nomal
PAYE way and if that is one person, then the same applies. If there is
a profit at the end of the quarter, the director(s) can choose to keep
some for a short while as a float, but will normally pay a (pro-rataed)
PAYE adjusted bonus to the employee(s). An agreed amount of profit is
allowed to stay within the business in order to allow it to sustain
itself, or if agreed, grow and invest.
It would be genuinely helpful if the HMRC could then create a standard
catchall CT2000 return that results in zero corporation tax and allow
it to be perpetually signed as a declaration in the NfLtd. companies
founding documentation. Failing that, a tickbox on the end of one of
the PAYE forms.
Employees of NfLtd companies, of which there usually very few, if
seldom more than one, do work for other people and companies and charge
for their time and expenses and sometimes add VAT. VAT being up to
HMRC. They get a basic wage of twice the national minimum wage to
the nearest ten pounds sterling for every billable hour. If it is not
billable it is not paid. Once the NfLtd has paid all its bills,
including the employee(s)' fixed hourly rate, the company will
hopefully have some left. This surplace might be reinvested in kit or
training or comms bills, or kept for a bit to buy a bigger piece of
kit, or it might be paid as a PAYE bonus, but it can never be simply
handed over as a dividend. The company is not allowed by it's founding
documentation to make a profit. No profit, no dividend to pay.
A company that invests in an NfLtd company does so without any
expectation of the return of anything but their initial stake if it not
spent by the NfLtd company before year end. This investment may or may
not give the investor any say in the running of things, that would be
part of the agreement between the two parties, but at year end, the
investment must either be returned, spent, paid as PAYE or given to
charity; the later being favoured and declared as a discoverable fact
about the NfLtd. It should be noted though that it would be wise for
the director(s) to take good advice from people willing the dish out
without hope of interest and scant thought of return. It would be
declared as an expense by the investor company and given generally for
strategic rather than direct fiscal gain.
NfLtd companies pass all transactions through a single business
account. This account being the one named to HMRC for the purpose.
It would be useful if the banks could offer a web page for NfLtd
companies to tag their account statement lines with something useful
and for the bank to generate the relevant accounting reports as ageed
with HMRC. We'll tell you what that was, you agree with the taxman what
it costs. You do it once for the lot of us and then crank out the
monthly charges. Each bank has a declared agreement with HMRC and a
pre-agreed list of account line item meanings. The bank has a business
front end wrapped around this framework, and can also offer or
franchise out such things as printing and sending the customer bills.
If the customer doesn't pay up in the agreed time, the bank takes this
seriously and applies interest as per the law. It is not the employee
doing this, it is the bank.
Given that the Invoice line items for Engineering time spent on a
particular project or task came off a timesheet entry that also becomes
an employee pay packet line item, it would be handy if the bank could
take the billable line items in the form of a timesheet and handle the
person tax sums as well. Different account of course, but at least a
subset of those same numbers. See it as the employee and the company
using the bank as a trusted third party between the company part of the
directors balance of payments and the personal side of the pay packet.
If the system works, the taxes just fall out of the bottom and straight
into the BoE.
Directors can invest in their company by giving an indefinite,
unrecallable, interest free loan. The only way the director gains is by
improving the company and so the size of his PAYE bonus. When a loan is
given by a director to their own company it does not attract any
personal tax benefit for the investor. This does not restrict the
ability of other individuals and companies to lend money for interest,
just the NfLtd companies' own directors.
Given that there is only one way out for cash money to come out of the
company and into the private bank account without fraud and that is
through the personal taxation system, which is due for a shakeup soon
anyway, the regulatory burden is reduced in several different ways.
CT2000 goes away. So the corporation tax team can focus their
attention on those that more closely fit their architecture.
There is no balancing act to run in the declaration of profit,
there is none. Any surplace you must keep for a short time, pay
yourself or give to charity.
Charities benefit. The company would formally declare a pre-bonus
percentage of surplace as donations to the charity and the two would
show each others logo, crest or whatever in conjunction with the
percentage in company and charity literature.
The main avenue of potential fraud would be to attach a bogus type or
personal use percentage to a bank statement line item. To be fraud this
would have to benefit the employee in a more direct way than was
declared and so bypass the normal payment/taxation route. Effort should
be taken to find a reasonably equitable way of easily divining and
charging tax on the difference between personal gain and company gain.
If no other reasonably low mainteneace way of working out what it
should be can be found the rate of the personal/company benefit split
is a tithe, a tax; 10% personal. The easiest way is for the company and
the HMRC to agree a ratio on declared dual use items and assume that
percentage of cost as a pay packet net item, atracting all the usual
PAYE charges. A Rep would probably have to pay a nominal percentage of
their company van costs if it lived at his house and he used it to get
the shopping every now and then. This in turn might mean the Rep
decides not to bother with another vehicle. Might mean he doesn't join
the race to the office blocks every day, just to pick up the van.
Another way that the bank doing both could be really handy. The company
pays the van bills, you tag them as van bills, the music goes round and
round and the pay packet falls out here.
Author: Andrew Meredith <andrew@anvil.org>
Date: 18th March 2007
Copyright: The Anvil Organisation Ltd
2007
