23rd July 2020
We all know the benefits of running a limited company, but let’s not forget that you are not only the director but an employee as well. This means you are entitled to the same benefits as any other employee.
Self-employment vs Limited Company
It is important to understand that being self-employed and running your company are entirely different matters and should not be confused. The fundamental difference is that a limited company operates as a separate trading entity, from which you receive your income in the form of a salary and dividends. A self-employed person, on the other hand, is taxed on profits (the trader and the individual are the same entity).
It is easy to overlook the fact that you are in employment, as you are the one signing a contract and solely responsible for delivering the work.
Now that we got the confusing bit out of the way let’s look at what help is out there for you as an employee, should you decide to extend your family, care for your kids or plan for the future?
Maternity Leave & Pay
Subject to eligibility, you may take up to 52 weeks off work after your baby is born. The earliest day you can start your leave is 11 weeks before you are expected to give birth, but will do the day after the birth of the baby.
Statutory Maternity Pay (SMP) is paid for up to 39 weeks. For the first six weeks, you receive 90% of your average earnings, and for the following 33 weeks, you get the lower of £148.68 or 90% of your average weekly earnings. Payments start at the same time as your maternity leave.
From your company’s perspective, SMP will replace your usual wages in your payslips while on leave. Your limited company will be able to recover this cost from HMRC. Speak to your accountant at least 15 weeks before your due date. They will be able to check your eligibility, calculate your payments and adjust the payroll accordingly.
Paternity Leave & Pay
As a new father, you are entitled to two weeks off after your baby is born. The leave must start after the baby’s birth and has to end within 56 days after.
Provided that you are eligible, the Statutory Paternity Pay (SPP) rate is the same as the maternity one of £148.68 or 90% of your relevant weekly earnings. Your company will be able to recover the SPP similarly to the Maternity Pay.
Currently, there are two schemes available to help you with childcare. Your company can help with one of them while reducing your company’s Corporation Tax (they are expenses after all!).
The Tax-Free Childcare scheme introduced in October 2018 allows you to receive up to £2,000 per year towards approved childcare. One of the parents needs to open an account online, into where contributions can be paid into. The scheme works just like a savings account; you and even the grandparents can pay into it. The Government contributes £2 for every £8 that is paid in. You need to earn at least the minimum wage and have a child under the age of 11 living with you.
The other scheme, which is now closed for new applicants is where a company provides its employees with a certain amount of tax-free childcare in the form of vouchers or paying a commercial childcare provider directly. Although the scheme is not taking on new entrants anymore, if you are currently using it, you can continue to do so. The limits to how much a company can contribute are presently £55 per week or £243 a month per employee. Should you go over this limit, the excess will be classed as a benefit in kind and subject to tax and employer’s national insurance.
It’s worth mentioning here that childcare costs count towards reducing your company’s Corporation Tax liability (it’s an expense).
Being a company director, you are in control of your holidays as well as the level of salary you pay yourself. You may take a vacation as you see fit and pay yourself the regular monthly net pay amount.
Should you take an extended leave, you may need to consider stopping the company payroll or reduce the amount you get paid. We advise drawing dividends instead, as they are taxed more favourably.
Sick Leave and Pay
Although Statutory Sick Pay is still available for up to 28 weeks at £95.85 we do not recommend paying it to yourself as unlike the Maternity and Paternity pay; your company will not be able to recover the cost from the Government. Also, any sick pay to you will have to be taxed as your normal salary.
Company Pension and Auto Enrolment
You might have heard about auto-enrolment, a Government initiative making compulsory for employers to enrol their eligible workers into a pension scheme automatically. Setting up auto-enrolment can be complicated and expensive; however, if you don’t employ such workers, it is possible to opt-out.
This doesn’t mean that you cannot make pension contributions from your limited company, but there is a more straightforward way to do so.
You could make employer pension contributions instead. Employer contributions are a way of drawing funds from your limited company while reducing the Corporation Tax liability. Unlike auto-enrolment here you can decide how much to contribute regardless of your salary (subject to annual limits).
We hope you find the above information helpful. Please remember that this is a brief overview, so if you have any questions, please contact your accountant.
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