Taxation of Proprietary Director

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goosebump

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I work on a freelance basis and set up a limited company in 2007. I did this in order to limit any liability that might arise in respect of work I did for other companies.

My wife and I are directors, each with a 50% stakeholding.

I have operated my accounts as follows.

I charged for my services by issuing an invoice from the company, which would be paid into my company account. Any costs I incurred were paid from my company account.

At the end of the year, I would calculate the company gross profit and pay myself an equivalent amount as a fee, leaving the company with a net profit of 0.

I would then prepare a Form 11 self assessment and pay my tax and PRSI based on the fee as my income. The amounts involved here are small. Less than €20k.

I understand now that I shouldn't have been doing this.

I should have been paying myself under the PAYE system.

I haven't underpaid any tax. My tax liability would have been the same regardless (in fact, I may even be due a PRSI refund), both for myself and my company.

What will the Revenue's attitude be if I go back and tell this them this now? I have always submitted a letter with my Form 11 explaining how I operate my accounts, and no one from the Revenue has even queried it.

Should I just start doing the right thing in 2011 and leave it at that?
 
I work on a freelance basis and set up a limited company in 2007. I did this in order to limit any liability that might arise in respect of work I did for other companies.

My wife and I are directors, each with a 50% stakeholding.

I have operated my accounts as follows.

I charged for my services by issuing an invoice from the company, which would be paid into my company account. Any costs I incurred were paid from my company account.

At the end of the year, I would calculate the company gross profit and pay myself an equivalent amount as a fee, leaving the company with a net profit of 0.

I would then prepare a Form 11 self assessment and pay my tax and PRSI based on the fee as my income. The amounts involved here are small. Less than €20k.

I understand now that I shouldn't have been doing this.

I should have been paying myself under the PAYE system.

I haven't underpaid any tax. My tax liability would have been the same regardless (in fact, I may even be due a PRSI refund), both for myself and my company.

What will the Revenue's attitude be if I go back and tell this them this now? I have always submitted a letter with my Form 11 explaining how I operate my accounts, and no one from the Revenue has even queried it.

Should I just start doing the right thing in 2011 and leave it at that?

Hi there
Have you been preparing your own accounts/Annual Return etc every year ?
I am just thinking that this would have been picked up by an accountant?

In answer to your question, I would be inclined to operate your payments correctly from now on, but I would also write a letter to Revenue explaining what you have done so far.


Larissa
www.accountantonline.ie
 
Tomorrow said:
Hi there
Have you been preparing your own accounts/Annual Return etc every year ?
I am just thinking that this would have been picked up by an accountant?

In answer to your question, I would be inclined to operate your payments correctly from now on, but I would also write a letter to Revenue explaining what you have done so far.


Larissa
www.accountantonline.ie
Click to expand...

Yes, I do my own accounts. I earn less than 20k so paying an account €1.5k to do my return doesn't make a lot of sense.

I think I started doing things this way when the Revenue sent me a Form 11. I presumed they wanted me to use self-assessment rather than PAYE to deal with my tax liability.
 
I can understand that.

As a proprietary director, you still need to fill in a Form 11 - except you need to fill in the employment section, rather than the self employment section, which I suspect you have been doing.
 
WindUp said:
OP - have you submitted Corporation Tax Returns?
Click to expand...

Yes, everything is in order. CT1, VAT3, P35, my own income tax. I even have a tax clearance certificate.

The only issue as I see it is that I've paid my income tax through self-assessment rather than PAYE.

One thing that has occurred to me is that I've always listed my income from the company as Directors Fees, rather than remuneration. I don't have a contract of employment with my company, and it only pays me twice a year.

As I understand it, Directors Fee (ie fees for doing the duties of a Director) do not need to be paid via PAYE. Perhaps this is why the Revenue have never raised any flags?
 
No loss to Revenue is not relavent.
If you got a difficult Revenue auditor who insisted on the application of emergency tax on the salaries as the company did not hold a cert of tax credit and standard rate cut off you might have no net liability but a penalty.

They might also raise an issue about VAT if the company is registered and you are not. Again you pay over the VAT and the company recovers it but a penalty may apply.

But given that the issue has not arisen in 4 years operate properly from now on might be a good call.
 
Whatever about sole-traders not using an accountant, anyone operating via a company really does need to engage an accountant.

I'd get one quick, and I'd fix the above properly and not just going forward.

Alternatively, ask youself do you really need a company - would proper insurance not give you the cover you need?
 
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