Becoming a director – any advice

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  • Becoming a director – any advice
  • bigsurfer
    Member

    I am currently the senior design engineer for a small machine builder. I am being told that due to TAX threshold it would be benedicial to split design and service away from manufacture into 2 sepperate companies ( I beleive VAT is payable as soon as invoiced once the company turnover is over £2,000,000)

    I have been asked if I would be interested in being a Director of the new design / service company.

    I understand that I would be responcible for the Health and Safety of our employees and also liable if yearly accounts were not filled on time to companies house. I am happy with both of these responcibilities.

    Is their anything else I should be aware of that changes from being an employee to a Director.

    Any inidication of how much of a pay increase I should be looking to secure with the new role. I am led to beleive that it is possible to get an annual proffit share / share option that possible attracts less tax than PAYE is this correct, anybody have a link to any relevant information.

    Trimix
    Member

    When the company runs out of money the creditors will be looking at you to pay the bills.

    You become the human face of the company. So make sure you know what the company is liable for.

    Premier Icon wwaswas
    Subscriber

    NI is loaded towards the start of the year for company directors.

    you are also resaponsible for esnuring the company is not trading whilst insolvent.

    woudl you be employed by both companies or just the new one? Look at TUPE etc.

    bear in mind that once you’re a separate legal entity there’s nothing to stop them putting design work out to tender and then there’s no redundancy or anything for them to pay if someone cheaper gets the work.

    I’d want to understand more about the relationship too – can’t imagine the vat man just letting it through on the nod if it’s just being done to avoid immediate payment.

    Premier Icon Kryton57
    Subscriber

    In the corporate world I live in, the two Job descriptions you want to avoid if you want to be working for more than a year are “Director” and “Sales”.

    On a more serious note, I’m pretty sure shares (once “realised”) is just cash in the bank on exit, which is taxable like any other amount of cash. The point with shares is to take £20k of shares today which you could sell at £40k “tomorrow”, but there’s equal risk the other way of course.

    Pay increase needs to be in line with the same role in your industry + any incentive your comapny would like to give you – you need to research that.

    … I hear you get a leggy secretary for shorthand type things

    Premier Icon Kryton57
    Subscriber

    WWW – can you perhaps (for me and the OP) explain the difference between the type of Director the OP is alluding to and the coporate job title of “Director” with no ownership I am referring to? It’d help the OP and me.

    Premier Icon Rusty Spanner
    Subscriber

    unfitgeezer – Member

    … I hear you get a leggy secretary for shorthand type things

    And a chair with your name on the back.

    Oh, hang on……..

    Premier Icon wwaswas
    Subscriber

    If you are ‘director of’ something it has no legal significance.

    If you are ‘xxx director’ it tends to indicate you are named with companies house which gives you legal responsibilities as above.

    you don;t need to have shares to be a legal director.

    edlong
    Member

    When the company runs out of money the creditors will be looking at you to pay the bills.

    Almost certainly you will be looking at a limited liability company so this will not apply.

    Don’t take the H&S responsibility too lightly. If someone does something stupid but forseeable and dies, and you’ve not done anything to stop it from happening, unlimited fines and prison could await.

    Detailed tax planning info (personal and the corporate VAT thing) needs proper, qualified advice. There can be tax advantages to being a director, but not necessarily. You can be a director and still on a salary / PAYE basis, only the National Insurance might change. Equally, employees can be paid in shares / share options etc, so being a director doesn’t necessarily change anything.

    Premier Icon wwaswas
    Subscriber

    fwiw I’m a company director but still on PAYE.

    bigsurfer
    Member

    I think they were alluding to profit dividend as apposed to shares, if I am correct the first £34K of dividend payment is only taxed at 10%. Could I be elligable for profit dividend if I am not a director.

    Yes the current company is a limmited company and so would the new one.

    Premier Icon wwaswas
    Subscriber

    profit dividend as apposed to shares

    that’s just a bonus isn’t it 😉

    I’d get advice from an accountant on all this, tbh.

    Premier Icon Nobby
    Subscriber

    Almost certainly you will be looking at a limited liability company so this will not apply.

    Very much an urban myth. A Director of a company can (and is increasingly being so) be held personally responsible for his actions. It is becoming more common that they are named as co-respondents in employment tribunals or health & safety prosecutions and the Companies Act specifically states that the company – limited liability or otherwise – cannot afford the individual any protection or financial assistance in these situations.

    The company can buy ‘protection’ for their Directors & I made sure my employers had it in place before accepting my first directorship.

    This article may help explain it better.

    julians
    Member

    Theres no immediate benefit to you being a (legal as opposed to just job title) director of a ltd company, except that you get experience of running a company.

    You’ll have to fill out self assesment tax returns (even if you remain as PAYE – which you probably will).

    You’ll be reponsible for doing the following:-

    – submitting company returns to companies house
    – Ensuring the accounts get filed on time
    – Ensuring things like insurance and stuff are up to date
    – setting up the staff’s contracts (presume you would just copy these form the current firm?)
    – Dealing with/filing and paying VAT returns
    – All the usual HR stuff (holidays, sick pay, disputes, hiring/firing)
    – paying corporation tax
    – ensuring that the company makes a profit
    – answerable to the shareholders (see point above), you may or may not be a shareholder yourself. This is the key point, if you are answerable to the shareholders and are not one yourself (or dont have a controlling stake in the firm), then you need to make sure that you are clear about what they expect of you, or you could find yourself in the firing line. Its no different to being an employee in that respect, but make sure you understand what they want you to do.

    You can of course delegate any/all of the above to someone else, but they still remain your responsibility.

    You will not be personally liable for any money or debts that the company incurs(assuming it is a ltd company), unless you sign a loan agreement that states otherwise.

    damo2576
    Member

    I am currently the senior design engineer for a small machine builder. I am being told that due to TAX threshold it would be benedicial to split design and service away from manufacture into 2 sepperate companies ( I beleive VAT is payable as soon as invoiced once the company turnover is over £2,000,000)

    Not sure of or if that there is a tax benefit here, still get a month to pay VAT when t/o >2MM

    Separate out in your head being an Employee and a Director. If a Director you still need a contract of employment, assuming you’re an employee and so on and should continue to negotiate that separately of any discussion re being a Director.

    Any profit share will still be taxed at your regular rate, share options more complex but in general when you take a gain it will be at capital gains rate which will be less than you income tax rate.

    Clever structuring could further improve this, I would try to see if the new entity could be elegible for entrepreneurs relief for which after a qualifying period would be 10% CGT. You would need to be a Director and be issued shares in NewCo.

    Lawyers and Accountants are your friends.

    Personally I’d avoid becoming a Director for a company I didn’t own or part own.

    Premier Icon franksinatra
    Subscriber

    Brother in Law recently was in same position, he went to legal firm that gave him simple advice. Took 30mins and helped him a lot. Probably worth the investment.

    Trimix
    Member

    Limited liability dosent do what it says on the tin in some respects.

    Any bank / creditor / lender will expect a Director to be personably responsible for any lending they do.

    Just be carefull, I had a ex who lost her house for the same reason.

    Premier Icon Kryton57
    Subscriber

    wwaswas – Member
    If you are ‘director of’ something it has no legal significance.

    Ah good. Its long been my understanding that in US large corporate world this is just another title for “Senior Manager”, I was just checking.

    American stuff is bonkers, read literally my job title means I’m responsible for all software solutions across Europe and further, rather than the SME on the one global product with UK responsibility and an “assist” to other teams in other regions.

    Anyway Director is one of two route upwards for me, but that’s Director in the US corp sense.

    edlong
    Member

    Very much an urban myth. A Director of a company can (and is increasingly being so) be held personally responsible for his actions. It is becoming more common that they are named as co-respondents in employment tribunals or health & safety prosecutions and the Companies Act specifically states that the company – limited liability or otherwise – cannot afford the individual any protection or financial assistance in these situations.

    Did you read my post? My comment about limited liability was directly in response to a comment about the company running out of money, and creditors. It remains true. Unless the directors have been wrongfully trading / trading while insolvent.

    In the very same post I emphasised the personal accountability for H&S. There’s a world of difference between limited liability and not being personally responsible for anything, I thought I’d drawn that distinction! Limited liability has never been about not being responsible for health and safety or any other such, that isn’t new.

    Watch out for PGs (Personal Guarantees), this is where the director effectively signs away their limited liability. That way you CAN lose your house….

    andrewh
    Member

    Limited liability dosent do what it says on the tin in some respects.

    Any bank / creditor / lender will expect a Director to be personably responsible for any lending they do.

    A director will only be held liable for the company’s debts if they have signed a personal guaurantee. Yes, some creditors will insist on this as condition of lending but not all. The guarentee can be for a limited value so is not open-ended in the way a partner or sole trader would be liable for the same debt.

    Premier Icon ourmaninthenorth
    Subscriber

    Some good advice on here. And some terrible advice.

    My recommendation would be to get your current employer to pay for you to have some decent legal and financial advice so you can decide what to do – that’s assuming you are to become a statutory director (ie info registered at Companies House and having a series of responsibilities set out in law), rather than an employee with the title of director.

    I work with loads of people whose job title is director, but very few of them are statutory directors.

    peterfile
    Member

    Some good advice on here. And some terrible advice.

    Might copy and paste that into every STW thread 🙂

    I thought you meant film director – was going to say don’t bother unless you’re a friend of those above. lol

    b r
    Member

    My recommendation would be to get your current employer to pay for you to have some decent legal and financial advice so you can decide what to do – that’s assuming you are to become a statutory director (ie info registered at Companies House and having a series of responsibilities set out in law), rather than an employee with the title of director.

    This.

    Premier Icon Nobby
    Subscriber

    Did you read my post? My comment about limited liability was directly in response to a comment about the company running out of money, and creditors. It remains true. Unless the directors have been wrongfully trading / trading while insolvent.

    I did read it and my comments still stand.

    If a company goes into receivership it is possible (if we were in the U.S. that would read ‘probable’) that any creditors could take a civil or class action against the individual directors. It is not unknown for a solicitor to attend the first creditors meeting and offer to take an action against board members to the top 10 creditors. The argument for this centres on the director’s duty of care in the running of the company which, by virtue of the fact it has failed, suggests they have breached. Even if it is found that the director(s) acted ‘reasonably’ there is still the question of defence costs that would ave to be funded by the individuals (unless D&O cover had been purchased).

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