If you’re building a creative or a sporting career, dependent entirely on your own talents, it may still make sense to employ people to support you – to organise your world, to make the deals, to exploit the opportunities that you simply can’t manage.
But these people will want money and paying employees correctly and efficiently is a crucial aspect of running a business in the UK, and understanding the tax implications can help you minimise costs and ensure compliance with HMRC regulations.
There’s a number of things to ponder on:
Choose the Right Employment Structure
If you form a company to pay employees, then the structure of that company has an impact:
- If you’re a sole trader or partnership, converting to a limited company can offer potential tax benefits, such as lower corporation tax rates and the ability to claim wages against your profits.
- For limited companies, a combination of salary and dividends can optimise tax efficiency. You can pay a reasonable salary, contribute to a person’s pension, claim certain allowances (see below on both of these), and then distribute the remaining profits as dividends.
- If you’re employing independent contractor, be aware of IR35 legislation, which determines whether they should be treated as an employee for tax purposes.
Utilise Employee Benefits
By maximising employee benefits, you can make things better for your company and your employees:
- Employer pension contributions are generally tax-deductible, providing a valuable benefit for both you and your employees.
- Offering company cars can be tax-efficient for your employees, and you may be able to claim certain allowances.
- Explore other tax-advantaged benefits, such as childcare vouchers, gym memberships, and cycle-to-work schemes.
- Consider too a salary sacrifice scheme, employees agree to reduce their salary in exchange for a benefit provided by the employer. This can result in tax savings for both the employee and the employer.
Whatever your company structure, you should, for moral as much as legal reasons, ensure you’re paying your employees at least the national minimum wage (for workers aged 23 and under) or the national living wage (for workers aged 23 and over). Failure to comply can result in penalties.
And just so you have no excuse, those levels are:
The minimum wage levels in the UK as of April 1, 2024, are:
Age 21 or over (National Living Wage): £11.44 per hour
Age 18 to 20: £8.60 per hour
Under 18: £6.40 per hour
Apprentice: £6.40 per hour
Some regions may have higher minimum wages, such as the London Living Wage (£13.15).
As with any new government, there are likely to be changes to tax legislation, especially for companies, and to minimum wage levels. Some benefits (like offsetting company cars) may become increasingly untenable, so make sure you stay informed – a reliable and knowledgeable team behind you is best for that, and we can advise on payroll software, employee travel expenses, share schemes and profit sharing and all the other benefits that can help make working for you even more of a joy (and even more efficient).
So let’s have a chat and work on the best ways to grow your business empire.
