Somebody has approached me who wants to convert her current Community Volunteer Group to a CIC. This is mainly because a lot of the community projects want to see a CIC in order to award funding.
She's quite hung up about the tax advantages of this but doesn't really understand the details - she is being given information by various people and she is taking bits onboard which she wants to hear (ie she pays less tax!) but I don't think it's all accurate.
What I have worked out so far is the following:
- To form a CIC, you need to form a Company Limited by Guarantee or a Company Limited by Share Capital/Dividends
- It seems that some of the groups awarding grants are asking for the Company Limited by Guarantee rather than that Limited by Share Capital.
- Directors of a Company Limited by Guarantee generally pay themselves as an employee through the normal PAYE route.
- Where private work is carried out by the Director, that person can invoice the CIC as a self employed person.
- Corporation Tax can be minimised by ploughing profits back through training etc (as well as paying the director through the company)
I have two questions on this:
1. Are there any other ways for the Director to pay themselves which would be advantageous for tax?
2. She has been told that it is possible to claim the £12,500 tax free allowance TWICE by drawing a salary through the CIC and again as a self employed person. I can't see how this would be possible as it is the same person and surely that would all come out in the wash on the SA Tax return?