Year end return: average number of employees?

[hobnob]

I'm reviewing my company's year end returns, specifically the document that will get published on the Companies House website. This has a section for "Average number of employees", and my accountants (Crunch) have said "The average number of employees in the period was 1" (i.e. me).

I've queried that, on the basis that I'm a director but I'm not an employee, i.e. I don't have an employment contract with MyCo. However, Crunch said that I "would be a director and an employee assuming a PAYE scheme has been set up and payroll runs are being issued".

On the other hand, I found a website from a different accountancy firm:
Are Directors Employees? - Patterson Hall Chartered Accountants (pattersonhallaccountants.co.uk)

The key line is:
"The disclosure in the year end accounts is not a tax required disclosure. It is a Companies Act requirement. [..] No contract of service therefore means not an employee. Therefore the typical director earning £8.4k SHOULD NOT be disclosed as an employee in the accounts."

Normally I would defer to my accountants, on the basis that they're specialists in this area and they know more than me. However, I've already had to correct some other mistakes (where they'd miscalculated depreciation), and I'm aware that I'm the one who's legally responsible for the accuracy of these documents.

I assume that this is a fairly common scenario amongst IT contractors, but I couldn't find anything relevant when I searched the forum. How do the rest of you handle this?

[WTFH]

A slight issue with your linked source.
They jump from minimum wage to "could easily work 40 hours a week", and later "Assuming they work over 21 hours" and "Assuming the minimum wage would take them over earnings of £10,000 per annum"
It's almost like a Wail headline. Designed to draw you in, hoping you miss the assumptions.

[ladymuck]

My accountant includes a 1 and I've never questioned it.

This is a better quality resource:
https://www.whitefieldtax.co.uk/empl...ats-mandatory/

The salient point for you is (all bolding is as per the article)

Should the directors be included in the calculation?

For company law purposes, directors are not automatically employees of a company. The definition of director (s 250) also includes shadow directors (s 251).

Section 250 states:
‘In the Companies Acts “director” includes any person occupying the position of director, by whatever name called.’

Section 251 states:
‘In the Companies Acts “shadow director”, in relation to a company, means a person in accordance with whose directions or instructions the directors of the company are accustomed to act.’

In conclusion, according to the Companies Act directors hold an office and are known as officers of the company. However, there is no reason why an officer of the company cannot also have a contract of service with the company and if this is the case, the directors should be included in the calculation.

The usual position is that an executive director will usually have a contract of service with the company, and so would be included in the calculation.

I don't see it as an issue to get het up over. What exactly are you worried about?

[Lance]

I agree with your accountant. It's 1.

the entire concept of directors not being employed is a very pedantic point to allow for not paying minimum wage. For anything relevant you're an employee (IE. PAYE salary is paid).
In either case, if it was 0 rather than 1 it would not make a jot of difference. Just let them file it and worry about important things.

[hobnob]

Thanks all. I know that it's a common theme in this forum for someone to say "I'm an employee of MyCo" and then for other people to say "Are you though?" So, I wanted to make these returns as accurate as possible. However, last year's return (when I paid less attention) also said "1 employee" and that didn't cause any trouble, so I'll approve what they've sent me.

[Maslins]

This does feel like one of those non-issues that some people get unnecessarily paranoid about! I for one don't get the periodic in depth debates about whether directors are employees or not. The reality is nobody other than a tiny geeky minority cares. It makes no practical difference, just seems something bored people can argue over. FWIW we put "1" to the number of employees question where it's just a sole director. If your accounts instead showed "0" I can't see it causing any issues whatsoever, it doesn't matter, but all accounts now legally need to show something there.