My partner and I want to set up a limited company. My partner is going to be the director with 50% shares, with the other 50% for me as a shareholder. Could we work for our own company without being employees and only take dividends at the end of the tax year?

Arthur Weller replies.
Strictly speaking, you are allowed to work for your own company and take no remuneration/salary, and simply take out dividends as shareholders. The difficulty is with the national minimum wage (NMW) and national living wage (NLW) rules. HMRC enforce the NMW and NLW on behalf of the Department for Business, Energy and Industrial Strategy. Guidance on the NMW and directors in Tax Bulletin 50 (December 2000) indicated that a director who does not have an ‘explicit’ employment contract is highly unlikely to be subject to the NMW legislation. Where such a contract (which need not be in writing) exists, however, the legislation is likely to apply - even if the company is making losses - on the basis that a worker/employer relationship has been created. HMRC indicated that where there is no express employment contract it is not normally necessary to pay the NMW to directors of new businesses; loss-making family companies; group companies; dormant companies; trade associations; companies where the director works out of a sense of public duty rather than for payment; or flat management companies. The NLW will be treated in the same way