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I recently quit my job to start a limited company. I don't expect to make any money or pay myself anything for probably at least 4-6 months, so do I need to register myself as self-employed and the company for PAYE right away?

My P45 states that I must "register with HMRC within 3 months of becoming self-employed", but surely this is only if you're getting paid? I don't want to make myself eligible to pay income tax and national insurance when I don't personally have anything coming in, and I certainly don't want to have to fill out more paperwork if I can avoid it!

Is there anything I need to do to let HMRC know that I'll essentially be voluntarily unemployed for this period? Is it also worth submitting a P50 in case I've overpaid on my tax from my previous employment?

Once the company is earning I'm definitely going to get an accountant to help out with this kind of thing, but at the moment I don't have the disposable income to pay for one, so any advice is greatly appreciated.

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Firstly if you've formed a limited company you don't need to register as self-employed. You're an employee and shareholder of the company and your taxes will be handled that way.

Registering as self-employed is only necessary if you're operating as a sole trader (i.e. without a company).

Secondly you absolutely do want to get set-up correctly with HMRC as soon as possible, whether you're a company or a sole trader. Ignoring the legal question your worry about paying taxes when you have no income is groundless - if you're not making any money there won't be any tax to pay. Furthermore it seems likely that the business is currently losing money. Those losses, if correctly recorded, can be carried forward and offset against future profits so not only do you not have to pay tax now, but you can reduce the tax you pay later when the money does start rolling in.

  • Great, thanks for this. So to summarise, you recommend that I register the company for PAYE now, and complete sections 8-18 on my P45 to declare myself as an employee of the company. Then presumably NI contributions (if there are any) will be handled in the year end return. This makes sense to me as it would then allow me to pay myself immediately when the company starts to turn a profit if I want to. – Matt Aug 4 '15 at 7:02
  • Looking at gov.uk it appears you can't register for PAYE until you actually intend to start paying someone (specifically it says no more than 2 months before you start paying, which implies you can't register until you have a known first payment date). How and when employer and employee NI and tax is actually paid I haven't looked into but I suspect it may be more often than annually. – Nigel Harper Aug 4 '15 at 8:00
  • Yeah, I've just seen that as well. So it looks like if I don't intend to pay myself yet then I can't set up PAYE, so there's no class 1 NI to pay. I could self-assess, but as my personal earnings will be under the ~£6000 and ~£8000 threshold respectively, I wouldn't have to pay class 2 or class 4 either. So the question is do I have to notify HMRC of my position, and if so how? – Matt Aug 5 '15 at 8:33
  • If you're not paying yourself your income is 0 (unless you have income from other sources). If you do have income from other sources that is being taxed at source (e.g. non-ISA savings interest) then you may be able to reclaim that tax, or register to have it paid gross (but that might be worth a separate question). Separately you do need to start keeping company accounts to record the company's income and outgoings and probably file those with a company tax return. – Nigel Harper Aug 5 '15 at 8:57
  • Yep, already on the company accounts, that confuses me less (for now anyway), it's really just about managing my transition from employed-by-someone-else to employed-by-my-own-company. Thanks for all your help. – Matt Aug 6 '15 at 10:04
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From my experience it is much easier to start as a self-employed rather than a limited company. You almost have no paperwork and self assessment can be done online in as little as 20 minutes (from personal experience).

On the other hand having a limited company grants you a pile of papers to fill in from the start and almost certainly needing an accountant to do your taxes.

Regarding the income tax - if you have no profits, you will pay no tax. And that will leave you only with national insurance that is only about £70 for 3 month (better check with HMRC for the exact figure).

So if you don't have a good enough reason to do a Ltd, start as a self-employed, you can always change to limited company later.

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    As of the current tax year Class 2 NI is now handled through self-assessment so AIUI you don't pay it in advance any more and if you're making below the small earnings threshold you automatically don't pay it at all (unless you opt to do so voluntarily). – Nigel Harper Aug 3 '15 at 15:38
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    Ooh, did not know they have changed the NI taxation for this year. Good catch! – trailmax Aug 3 '15 at 21:40

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