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Buachaill, Barrister
Category: UK Employment Law
Satisfied Customers: 10623
Experience:  17 years experience
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what does the law have to say about a newly formed company

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what does the law have to say about a newly formed company that had a proposed contract to employee someone and that person worked from 2 jan to 22 feb 2013 she was appointed as director the company did not have a paye ref no she received 2k as directors drawings and the company prepaid her rent from 2 feb 2013 for a 6 month period the claimant received 6375 for her rent and 2k directors drawings the employment tribunal has said that she is due unauthorised wages notice etc
any case law to refer to of a company that does not have a paye no and director received monies etc the company is dormant and never traded she was appointed there was an investor that spent a considerable amount of money and the judge does not seem to understand that she received a total amount of 8375 tax free how do I deal with this now I am the accountant of this company
1. At the outset, this company can not be said to have been dormant during this period, as it had commenced trading and appointed an executive director to handle its affairs. As such irrespective of whether it had a PAYE number, the company was certainly carrying on trade as understood by the law. The £6,375 paid in rent is an expense of the company and as such it is a tax deductible item. so too is the £2k in wages received by this lady. As both are payments to an executive director and therefore subject to Income TAx, there is a duty on the company to have deducted Income tax from these payments before they were made to te benefit of the employee. Accordingly, these payments must be "grossed up" and Income Tax paid as if the payment in gross had been made to the employee before the net benefit of £8,375 was given to the employee.
2. The balance required to give a grossed up figure must then be paid to HMRC in Income Tax deductions. This gross figure is then the total expense to the company and is deductible for corporation tax purposes.
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Customer: replied 4 years ago.

hi just a q the company did not generate a revenue 20 k was invested by a foreign investor it was within her duties to register the company for a paye due in accordance with companies act she was the sole director the company never agreed to pay her for her rent but a part of the rent and she specifically said that in her et1 claim


3. Well if the company was only meant to pay part of her rent, then she is a debtor to the company for the part of the rent which was not to be paid. So essentially, whatever part of the rent which was not to be paid by the company remains a debt in your accounts but income tax must be paid by the company on the remainder of the benefit conferred by the rent paid on her behalf.
4. The 20k invested by the foreign investor can either be treated as a loan or as a contribution to share capital, depending on what your client wants. Be aware that the failure to get a PAYE No. is not something the law looks at when assessing the accounting treatment of monies received. Nor is the issue of breach of director's duties.
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Customer: replied 4 years ago.

thanks but she has brought a claim to the tribunal for notice and holiday pay when in fact she only worked for 1 month and 14 days

how can she be a debtor and still claim monies from the company when in fact it is she that owes the company any monies this is my argument I am a qualified accountant but my question is this lady has brought a claim to the employment tribunal that worked for 1 month and 14 days has filled and served in Greece as the respondent is in Greece without obtaining permission to service outside jurisdiction my question can we argue that she all ready received so much money from the company and is not due any holiday or notice the company paid all her rent on 5 February and 20 February the association was terminated so how can she claim unauthorised deduction from wages when in fact she still to this day is residing in an accommodation prepaid by the company that is dormant and is not providing a service this is my argument

5. This is an interesting argument. However, there is an inherent weakness in law in that other debt claims cannot be set off against claims for unpaid wages. Accordingly, the company is unable to set off claims it is owed against the claim for wages made by this person. It is up to the company to sue separately for these monies. Secondly, there is no need for service out of the jurisdiction application nowadays when the proceedings are being served in another EU jurisdiction such as Greece, provided the EU Regulation on Service Abroad (formerly the Hague convention on Service Abroad) is complied with. Thirdly, the obligation on an employer to give notice and pay holiday pay is not dependent on the length of service. Finally, I would advise the company to pay any pay in lieu of notice or holiday pay and not get embroiled in a legal action if their case is weak.
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