This is my first time experiencing setting up a business and I have just registered my company 'Burwell Skate School CIC', it is limited by guarantee. I am pretty confused about a majority of things and was wondering if anyone could please help me out?
I have registered the business as actively trading from the 5th of Febuary. I set the date to which the company intends to prepare it's accounts to 30th June 2017, however, after doing some reading I am thinking this was the wrong choice and should've chosen the end of the year?
I am also struggling with everything tax related.. Here are some questions I have..
How much corporation tax will I pay? Is it 20% on everything earned, or just the profits after pay? When will the corporation tax be due?
How do I pay myself? I am the director of the company, should I be self employed or register for a PAYE number? If so, how does this relate into me paying tax? Also how much can I pay myself? I am currently using 10% of all earnings to put back into the business and also donate to the fundraising of a new skatepark in the community. The rest is used for salaries.
I am currently hiring one member of staff who is self employed, I will be paying him at the end of each month when he invoices me, is this ok?
I currently do not have an accountant, would you advise getting one? The business is still small and currently has a turnover of around £8,000, I am thinking it may be wise due to my lack of knowledge.
I hope this all makes sense, and I look forward to hearing your advice.
A company's accounting year normally ends at the end of the month the company was incorporated in. If you've chosen 30th June that shouldn't matter, though. Corporation tax is paid on profits, not total income. You are correct in saying the rate is currently 20%. It is due 9 months after the end of your accounting period.
More information is available at https://www.gov.uk/corporation-tax
As a director of a CIC you can only receive reasonable remuneration for services provided. If you are taking a salary, my understanding is you will need to run a PAYE, but this isn't 100% my area.
If the other member of staff going to be self-employed, you need to make sure the true nature of the relationship reflects this or it could be considered a 'sham' by the courts or an employment tribunal. They should be invoiced for specific services, not just their time. A self-employed contractor should work autonomously and not be integrated into the CIC's organisational structure. They should carry out self-contained tasks and undertake work that is ancillary to the main activities of the employer and not similar to the work of other employees. Where appropriate, a self-employed contractors would also provide their own equipment and incur financial risk of profit or loss (e.g. quoting to do a piece of work and sticking to that quote even if the work takes longer than expected). If the person is genuinely working in this sort of capacity, then there shouldn't be a problem, but if they are more like an employee, then you may be seen as trying to avoid the requirements of employment law. It may therefore be a good idea to consult an employment lawyer or a consultancy firm like Peninsula on this.
Hope this helps
Thanks for clearing stuff up! The company I have set up is primarily to teach skateboarding to young people in local communities, as I feel skateboarding strongly benefits young people, it creates new social groups, keeps people out of trouble and can give focus to those who struggle.
I feel I am being reasonable with my salary, as 10% of all earnings will be put back into the club to provide equipment for the students to use, skateboards, helmets, pads and extra ramps to make their experience more enjoyable. I will also be donating money to improve the skatepark that I am currently campaigning for.
The person who is self employed is a skateboarder from my village that is 17, I have hired him to help teach a few lessons a month, and have chosen to give him the job as he is a local lad without any experience, and it fits into the ethos of the company, giving something back by creating jobs within the community. However, if you think him invoicing me could be an issue, should I use PAYE for him also..? Do you have any advice to who I could speak to about paying employees etc? If he is employed would he then have to be a registered member with companies house? Currently I am the sole member of the company.
I know this sounds bad, but a part of me is thinking I should not have set up as a CIC.. As it seems like there is a lot more work and complications involved than a regular business, and not many benefits? As alternatively I could still support my local community, but have a lot less legal complications.. I should have read a lot deeper into CIC's to begin.
And you still should Max!
The issue we are discussing is true for all companies, including CIC. Separated out from tax, employment, company house law etc the CIC regulation and its requirements add perhaps 30 minutes of admin and an annual fee of £15.
There are some great examples of CIC skateparks that you could perhaps connect with to understand the wider potential or drawback of being a CIC, it's not a magic wand but it can be used to great effect in a number of ways.
It's usually tough whichever way you try, and you're certainly not alone in forming a CIC and figuring the details out later. Id even go as far as say its a common trait, good or bad.
Get some good finance people around you and you'll be fine, you've already put so much in place already but you clearly do need help in this area. But beyond the costs of paying for basic tax services, the right experience can make all the difference in your chances of success. Especially if you're not experienced in this area.
But if you regret becoming a CIC still you'll need to stop immediately and consider what you do moving forward, cut your losses early and start again? Now you have to ask what is the benefit of not being a CIC?
Luckily, I have a friend who owns a very similar CIC who I have just been speaking to and has helped me get this far already.
They have stated that they use PAYE to pay themselves and employees, and use freeagent accounting software to deal with all the admin that comes with being registered on payroll. They also said you can pay yourself upto £80,000 a year, so they pay themselves all of the profit before the end of the year to avoid corporation tax (which sounds a little dodgy to me).
The only benefit I see to not being a CIC really is not having to deal with PAYE, and having to register all my employees as members and possibly creating a contract for them, but maybe it just seems more daunting to me than it actually is..
Yes, that does sound dodgy. All assets are 'locked' in a CIC and must only be used for the benefit of the community, so you can pay market rate salaries, but not £80,000 profit.
There's lots of good software for PAYE, but it's a difficult area, especially since auto-enrolment pensions came in. There are agencies that will handle payroll for you, but they aren't cheap.
With regards to the 17 year old skateboarder, I would think it's legitimate for them to be self-employed as they are only teaching a few lessons a month.
On your other point (If he is employed would he then have to be a registered member with companies house), the answer is no. There is a difference between a company's members and its employees, although people can be both. Members will have a right to vote on the management of the company, but employees will not.
Thanks for the help guys but I think have made the decision to dissolve the CIC :( and be a sole trader instead due to the simplicity of it. It is a bit of a shame, as I will not be able to gain funding for the club to go towards equipment or a new skatepark. However, mainly due to having to use PAYE and tying people to contracts etc I am deciding that it is ultimately not the best option for me. Thanks for the advice though, I have learnt so much about business in the last 24 hours, so maybe it was a good learning curve for me!
Glad we could help out anyway.