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Contract

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Does a sole director need a contract with their own ltd company?

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By Duggimon
03rd Sep 2021 12:50

Well, I suppose it depends what you mean by "director", "their own", "need" and "contract".

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Replying to Duggimon:
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By Awk
03rd Sep 2021 13:18

Director as in, it's their own company that they started and registered with companies house.

Would they need a contract between themselves and the ltd entity?

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By David Ex
03rd Sep 2021 13:00

Depending what exactly you mean, the answer is either yes or no.

If you want a useful response, can you take the time to explain in more detail what your question is and the background to it.

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Replying to David Ex:
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By Awk
03rd Sep 2021 13:23

I have a director who is currently taking dividends as payments, but I feel it would be more tax efficient to switch them to PAYE but I wasn't sure if they needed a contract between themselves and the LTD entity?

This is their sole directorship and source of income.

I am not sure if that is sufficient background, but I am happy to provide more if required.

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Replying to Awk:
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By David Ex
04th Sep 2021 01:06

Awk wrote:

I wasn't sure if they needed a contract between themselves and the LTD entity?

Not for tax purposes, as I understand it.

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Scalloway Castle
By scalloway
03rd Sep 2021 13:02

According to the HR experts on another forum I am a member of if a director has a contract of employment with their company the company must pay them the minimum wage for every hour worked.

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By ireallyshouldknowthisbut
03rd Sep 2021 14:37

Which is why I don't have one.

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Replying to scalloway:
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By thestudyman
04th Sep 2021 15:06

But my understanding was as an office holder, a director can still be paid via paye and not have an employment contract, therefore circumnavigating around the minimum wage regulations?

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By williams lester accountants
03rd Sep 2021 13:06

maybe

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By Justin Bryant
03rd Sep 2021 14:11

If you want to avoid potential problems (e.g. under IA 1986 re an IP trying to claw back your so-called salary), then yes. See: https://www.rossmartin.co.uk/sme-tax-news/1214-directors-service-contracts

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Replying to Justin Bryant:
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By David Ex
03rd Sep 2021 14:34

Justin Bryant wrote:

If you want to avoid potential problems (e.g. under IA 1986 re an IP trying to claw back your so-called salary), then yes. See: https://www.rossmartin.co.uk/sme-tax-news/1214-directors-service-contracts

Ah, that’s what the OP was asking!

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Replying to David Ex:
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By Justin Bryant
03rd Sep 2021 15:51

NB if the salary is clawed back I assume it's a double disaster due to the tax you've paid (unless there's a valid contract an IP could presumably get the gross salary under IA 1986).

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