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Limited Company Mess

Director treated limited company as sole trader

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I have been approached by a nurse who was advised by her agency that due to a change in law they would no longer be able to give her any work on a self employed basis unless she operated through a limited company. I advised her that operating a limited company is not child's play and there are strict rules to follow, if she cant follow those rules she should ask the agency to employ her directly. The agency flatly refused so the nurse set up her limited company.

12 months on she has come to see me. She was in tears saying she had a tough time and not followed my advice . She has been using the limited company bank account like a personal bank account. Money paid by the agency has been used to pay personal bills and irregular cash withdrawls taken from the bank (£30k plus).

I am not sure what to do, none of the payments are regular so cant put down as a wage (no PAYE scheme, and no RTI either), difficult to put as dividends either as irregular amounts and no prior dividend elections either.

Has anyone else come across anything like this, what would you have done?

Replies (4)

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By lionofludesch
30th May 2016 12:15

Eh dear. If only clients would listen, eh.

They're loans from the company to her. Vote her a bonus or a dividend now and hope it's enough to repay the loans. How she's going to pay the tax (if any) is the problem she'll have to face.

I can't say I have a lot of sympathy for her if you advised her what to do before she set up this company.

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By Tim Vane
30th May 2016 12:40

I'm guessing that you don't have many small limited company clients? This is not uncommon behaviour for such clients, and while we do try to educate them, it is common practice to have to reconcile everything through the DLA and pay dividends to cover the balance.

As no salary or dividend has been paid in the year then you will have to consider whether there is a BIK payable, and you may also have s455 tax to consider.

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Jennifer Adams
By Jennifer Adams
31st May 2016 09:44

Dont be too hard on her -she would have had no choice but to use a company. She wont be able to get work otherwise. This is very common in the IT industry and, as you have found, in private nursing/ medical (not necessarily IR35 either). As Lionfludesch says just do the normal minimum salary/dividend via directors loan route. Get her to put everything from now on through the company. Hopefully she will have enough in the company account by the time it comes to pay the tax bill.

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By Kylo Ren
02nd Jun 2016 16:07

Is it possible for you to employ your spouse as a director with responsibilities re strategic direction. Presumably most couples discuss their business together - advice on how to handle things, whether to accept or purse contracts - that's got to be worth something. Maybe I'm wrong and HMRC typically challenge and win these things, but it seems to me that if the spouse is contributing to the business they can be paid for that input. Don't undervalue what your spouse does!

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