Company Setup - Part 2: The Tax Office
Before I talk about this, I should say, I am not a business advisor, tax advisor or accountant. Get everything checked with a friendly accountant before you register yourself. The tax office new businesses line is very helpful with advice for stuff like this.
Register with the tax office.
Now this bit is complicated because you are filling two roles here, you are both an employer and an employee.
Note: You are not self employed as the director of a company.
You need to register with Her Majestys Revenue and Customs (www.hmrc.gov.uk, I phoned them up, done in 5 minutes) as a new employer. They will send you out a new employers pack with all the paperwork you need.
You need to keep a number of documents, but the easiest system for game developers is probably to do this.
1. Agree to pay yourself per month
2. Get your P45 if you are working fulltime for yourself, otherwise contact tax office, you’ll need a tax code and most recent payslip).
3. enter details onto the P11 either by hand on the actual P11, or onto their computer system.
4. Each month if you have earned any money, you total up all the money you’ve earned, and pay the tax office the tax that needs to be paid.
If you haven’t earnt anything, you need to phone the tax office and tell them that you are paying nill tax this month. You can also send them a filled in payment form with a big fat zero in it.
Tax Back
Yup, my first three months, i ahve paid myself nothing, zippo, squat. And because I was paying tax at my previous job, the P11 calculator that the Tax Office gives you, let me know that I was owed tax back. I phoned up the Tax office, and they explained that in normal circumstances, the company would deduct the amount to pay back from it’s total monthly tax contributions from all employees, and would therefor pay less to the tax office than it deducted from peoples salery, and could pay me with that money.
But of course, I’m the sole employee, so what is supposed to happen is that the company pays the tax back, and claims relief from corporate tax at tax year end. But again, I don’t have the money to pay myself, so I wrote to the tax office and they sent me a cheque for the tax back to teh company, so the company can pay me the tax back. Very nice.
Paying yourself.
The easiest way I can see works like this.
- Work out how much you would like to actually take home.
- Add approximately 1/3 more, maybe a little more.
- Calculate the tax, NI contributions, pension, student loan and other deductions. They normally come to about a 1/3 of the monthly pay.
- If you aren’t taking as much home as you want, increase the amount your being paid, and recalculate the tax until your happy.
- As the company you now need to transfer the relevant money to all the correct places. Tax and NI go to the tax office as one payment I believe (I’m not paying myself anything yet).
- Student loans must be sent to student loans company. They’ll send you letters explaining it all when you tell the tax office that your now emloyed by your company.
- Pension contributions should be sent by direct debit normally to the pension company. They can help you set that up if you actually want a pension.
- The rest must b e transfered to your own account.
You must remember to give yourself a payslip. I’ts the law. the payslip must contain a number of legal bits of information. The pack you get from the tax office details them all, but basically, you must detail the employees name, NI number, gross pay, all deductions and payments, and the Tax paid this month, Total tax paid this year, and net payment.
It does not have to be written on any kind of special paper, or anyhting like that, it can be printed out on company headed paper, and given to you. File it, and keep it, because you may well need it when doing a tax return.
The rest of this series is Part 3: Accounting and The Books, and Part 4: The Tax Return. They come later on this year.