As a director do I need to pay myself the minimum wage?

Many directors of small limited companies effectively pay themselves at rates below the National Minimum Wage (NMW). This is perfectly legal as long as the director concerned does not have a contract of employment. As soon as a contract of employment is introduced and signed the NMW must be applied.

This choice, to be a contracted employee or not, also impacts upon a director’s eligibility for Working Tax Credit (WTC).

If you are a director with no contract of employment you will not qualify for WTC unless your partner works the required number of hours each week.

If you do have a contract of employment and pay yourself at least NMW for hours worked, you should qualify for WTC.

The current rates of National Minimum Wage are published below.

The rates from 1 October 2008 are:

– adults (which means people aged 22 and over), £5.73 an hour

– workers aged 18-21, £4.77 an hour – the ‘development rate’

– young people (those older than school leaving age and younger than 18; you’re under school leaving age until the end of summer term of the school year in which you turn 16), £3.53 an hour

– Apprentices under the age of 19 are not entitled to the National Minimum Wage. Apprentices who are 19 or over and in the first 12 months of their apprenticeship are not entitled to the National Minimum Wage.

Late filing penalties from Companies House from 1 February 2009

Limited companies are required to file a copy of their accounts each year with Companies House. If you file even one day past the filing deadline you will be penalised. The late filing penalties which will be imposed from 1 February 2009 are increasing dramatically!

The new fines for private companies are:
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Not more than 1 month – £150 (presently £100)

More than 1 month but not more than 3 months – £375 (presently £100)

More than 3 months but not more than 6 months – £750 (presently £250)

More than 6 months – £1,500 (presently £500 between 6 to 12 months, £1,000 over one year)
The new fines for public companies are:
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Not more than 1 month – £750 (presently £500)

More than 1 month but not more than 3 months – £1,500 (presently £500)

More than 3 months but not more than 6 months – £3,000 (presently £1,000)

More than 6 months – £7,500 (presently £2,000 between 6 to 12 months, £5,000 over one year)
Additionally if you were late filing in the previous year (and the previous financial year had begun on or after 6 April 2008) the above fines are doubled.
The new fines also apply to flat management and dormant companies.

The message is clear. If you are responsible for the management of a limited company make sure you leave plenty of time to prepare and file accounts on time.
Filing deadlines
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Companies with accounting periods beginning on or after the 6 April 2008 should note the following changes to the filing deadlines with Companies House.

1. Private companies and LLPs – the delivery deadline has been reduced by one month from 10 to 9 months.

2. Public companies – the delivery deadline has been reduced by one month from 7 to 6 months.

Consequential changes include:

Full calendar months for filing periods have been introduced. Where the accounting period ends on a month end date the accounts filing period will end on a month end date. (Except for the first accounting period)
.

Qualifying companies can still file abbreviated accounts.

Housebuilders Renting Property

Many building firms are now holding completed residential property which is proving difficult to sell in the current property market. One solution is to rent out this property for a short period in the expectation that property prices will recover.

Ordinarily most of the VAT paid on construction costs is recoverable. Unfortunately rents received from the letting of residential property are an exempt supply for VAT purposes.

So potential problem, a builder who both constructs and lets residential property is considered to be a “Partially Exempt” trader. Potentially a proportion of the VAT recovered on the construction work may have to be paid back!

The builder may have to:

. adjust the VAT recovered on his submitted VAT returns

. restrict the VAT to be recovered on current and future VAT returns

. or both
Contact us for advice. For instance if the amount of input tax which can be attributed to the exempt rental income is below a defined “de minimis” amount, no adjustment to past or future returns is required – VAT input tax can be recovered in full.

Provided the exempt input tax is below:

. £625 per month, on average, up to £7,500 per year; and

. is not more than half of total input tax ,

then the exempt input tax is de minimis and recoverable in full.

If you are a house builder, and considering the rental of residential building stock, do contact us at an early stage so we can help you through the partial exemption calculations which are tedious and complex.

The VAT change to 15% – some practical advice

As widely leaked/predicted the standard rate of VAT has been reduced to 15% from 1 December 2008. This reduction will be effective for a fixed period of 13 months. From the 1 January 2010 the rate will revert to 17.5%.

For VAT registered traders this creates a number of practical problems and issues, which we try to help with here

  1. All sales on or after 1 December 2008 should be charged plus 15% VAT.
  2. Zero rated, reduced rate and exempt sales or supplies are unchanged.
  3. Retail businesses should use the new 15% rate on all takings received on or after 1 December 2008 – unless the customer took delivery before 1 December, in which case you should apply the 17.5% rate.
  4. If you supply goods or services to other VAT registered customers and need to issue tax invoices, you should add on 15% VAT to all invoices dated 1 December or later – except where you provided the goods or services more than 14 days before you issued the VAT invoice.                                                                                 For example, if you issue a VAT invoice on 1 December for goods or services provided before 18 November 2008, or you were paid before 1 December. In these cases, your sale takes place before 1 December and you must use the old rate of 17.5%. Note if you received part payment before 1 December, use the old rate for the part payment.
  5. Under the normal rules all invoices issued and all payments received before 1 December 2008 are subject to VAT at the old rate- 17.5%. There are also optional rules that you can adopt. See section 3 of the HMRC publication recommended at the end of this article for more information on these special rules.
  6. If you need to work out the 15% VAT charged in a VAT inclusive amount, multiply by the fraction 3/23.
  7. If you have point of sale tills etc that produce a VAT inclusive receipt you may need to contact your supplier to ensure the VAT rate applied is changed for sales after 1 December.
  8. If you want to reduce your current (pre 1 December) sales price to reflect the reduction in VAT to 15%, multiply your old price by 115/117.5, this is equal to 46/47.
  9. Are you required to pass on the reduction in VAT to your customers? The answer is no – its entirely up to you. Many retailers and other businesses will choose to improve their own margin.
  10. If your VAT return period does not begin on 1 December, you will have account for VAT in the quarter which straddles this date accommodating both rates of VAT. If you use software to produce your VAT returns your supplier should be able to advise you on this.
  11. Make sure that you follow your accounts software supplier’s instructions regarding the change in VAT rate. If you use Sage Line 50 accounts software you can download instructions from the Ask Sage area, article number 22856 for the standard VAT scheme, and article 22857 for the cash accounting scheme.

HM Revenue & Customs have published a comprehensive guide to the VAT change. You can download it at:
http://www.hmrc.gov.uk/pbr2008/vat-guide-det.pdf. It is quite a large PDF document. If you need specific advice on any aspect of the change please call.