Stupid minimum wage law

I understand the law and I fully agree with it, however there is a major flaw with it, Directors are not exempt.

This means when I setup my limited company I have to pay my self minimum wage, this is somthing I cannot afford to do until I have contracts.

The only way round it is I act as a none paid director and volunteer for the company then take out a company loan to pay myself until I can pay for a full wage. Or I could just I work 10 hours a week or somthing but I am not sure if that is legal.

It seems diabolitcal that the government can actually fine me for not paying me enough.

I have to limited as well becuase software development is high risk and it gives a lot of extra trust to other companies (my clients).

 

I don't see why not.

Regards
Steve

 

Why are you going limited?

 

Several reasons:-

1) If a bug is found in any of my software I could be sued for £100,000s. I would have insurance as well but I like to be covered both ways.
2) Image, as each contract will probably be worth at least £1000 my clients need to know the company is stable, being limited separates me from the guy trying to make a bit of money on the side.
3)It will be easier to raise finance should I be in the position to do so.

I have just spoken to one of my university friends who has just setup his own digital clothing company (don't ask!!) and he said the way round it (at least for the first year months) is to be a consultant director and charge the company a fee. This whay it is not subject to minimum wage and its taxed under self assessment rather than PAYE.

I know running a limited company requires a lot of paper work and hassle but I think in the long run it pay off.

I am also considering being VAT registered even though I don't have to by law as the first month my input tax is likely to be greater than my output tax. Most my business will be VAT registered as well so they can claim it back.

 

AT, are you going contracting or setting up your own software development house in its own right? Having been there, if you're just contracting you may find it much less hassle to operate out of an umbrella company. As far as I am aware, your company is not obliged to pay you as a director - I think it lives outwith the remit of the minimum wage law. An accountant (which I'm not) can advise.

 

I have to disagree Im afraid.

I think you may be missing the point of being Limited

In no way does being limited take any responsibility away from you and it wont protect you. Anything you do for at least the first 2 years will require guarantee's from the directors (you and ????). Finace could be difficult unless you can prove the directors solvency. I understand point 1, but dont forget that you are just as liable for any claims being a director. EG: If someone has an accident at work, I as a director am responsible not the company.

Image; well Im far more inclined to use someone who is trading as themselve as opposed to a brand new start-up who goes limited straight away, I always ask myself why are they limited so soon??

Point three Ive answered above, remember that you will be giving guarantee's on everything.

Im not saying that being Ltd is bad in any way, we've been limited for 5 years (trading for 15) but our t/o is over a million and we are a solvent, profit-making company. The advantages to us are that finance is now borrowed against the business and there are tax advantages. Downside is the £1000+ bill you get from an accountant to do your year end.

Also, dont forget the govt comes down very hard on directors these days if any inapropriate behaviour is found, prison sentences are not uncommon.

Personally, Id be self-employed for a while and offer insurance-backed guarantee's on your products.

 

The old £100 limited company dodge often does not convey quite the image the directors would wish.

Please make sure you take good advice because

simple errors on your part may come back to bite you in the bum bigtime so get good advice and be prepared to pay for it.

 

I suppose as longs as I have decent insurance I might be ok. I need to seek professional advice on the matter, running a limited company with a small turn over is supposed to be much easier than running a company with a higher turn over becuase they let you submit more basic accounts.

A company with a turnover of £1 million for example would require much more complex accounts.

As longs as I am insured then there won't be much financial risk involved so maybe being self employed would be a safer option to start with. There is nothing stopping me being ltd if it works out.

The other issue is VAT, being registered will reduce my start up costs (once I get VAT refunds) but will add to admistrative costs.

One thing that concerns me is when I look at rival businesses they all seem to be LTD so I have to ask myself why.

I have my first meeting with the chamber of commerce next week so they should be able to give me further advice on the matter. I certainly believe in starting small and growing slowly becuase what goes up quick goes down quick.

 

A visit to businesslink may be useful, thats what I did before starting up.

If you deal with businesses, they prefer companies who are VAT registered as that means they can claim the VAT back. As I deal with individuals it wasn't worth it for me.

Decent insurance is a must, I took out public liability insurance in case I mess up an installation, costs me £100 per year and gives £1m cover so you should be fine with that.

Sole trader is easier from an accounting/paperwork point of view and also no minimum wage to worry about, for a ltd company it is usually suggested to hire an accountant to make sure everything is ok come tax time.

Also, remember to put money aside for tax each time you get a payment, they don't take any tax until, in my case, 2007 so I have to remember to put the money to one side or I'll be in trouble when they ask for the money.

I found business link to be very helpful, they also managed to get me a local goverment grant for startup costs.

Andrew

 

Yep thats what I have done, I have already been to a session organised by them. Its apart of Business Link.

http://www.manchester-business.co.uk/

They offer free courses as well which will be very useful, I am not entitled to any local government grant becuase I don't live in one of the so called poor areas. I live in an area with more graduates than possibly any where else in the country (56% according to the cenus) and also a high amount of directors so grants just aren't there.

I should however get a very small grant from the Business Link and I am looking into Princess Trust.

Most my customers will be businesses and I do think I should be VAT registered, but they can refuse to register you if you have no prooven customers (i.e I can claim a load of VAT back but not have any customers to charge VAT to).

I will some kind of professional insurance as well in case I can't deliver on time, e.g a relative dies and I have to go a funeral and can't deliver the project I will get fined by the customer.

My parents pay their income tax every 6 months so it makes it much easier to deal with. It used to be ever year and there was always a mad panic trying to find the money.

I should also have a business account because it dosn't look very professional asking customers to write a cheque to my name.

 

It has been sometime since I last looked at the minimum wage regs but IIRC the self employed are exempt

 

Employ a secretary.

Bob