From 1st January 2025, The Social Insurance (Classification) (Guernsey) Regulations, 1978 have been amended so that individuals who are employed by and have substantial control of a limited liability company will be classified as employed for contributions purposes. For the legislation you can see this link: CHttpHandler.ashx(guernseylegalresources.gg)
The States of Guernsey have now written to those with “a substantial control of a limited liability company who are paying self-employed social security contributions” and set out what this means, but as we are getting a number of enquiries from clients we have set out a general response here.
Social security changes for company owners summary
- From 1 January a company owner can include themselves on the company payroll as an ’employed’ person i.e. the owner can stop being treated at ‘self-employed’ for social security purposes (paying 12.2%*).
- Instead the company will pay 7.0%* on behalf of the owner with 7.4%* deducted from the owner’s gross pay along with their tax like a normal employee. Cost impact is minimal once you take into account that the social security for employed persons is tax deductible, in fact we calculate “employed” pay slightly less.
- This means that a) the administration of payroll for the owner / employee pay is easier as they are treated the same as other employees instead of only having their tax deducted and paying their social security separately and b) the company pays towards the owner’s social security and this payment is tax deductible which was not the case before.
We therefore see this as a positive change for business in Guernsey and generally we would recommend moving to employed, but those nearer to retirement age in particular, should consider secondary pension implications as a key factor in the decision making process.
Also more relevant for those nearer retirement age but plan to continue working – if a person moves to employed rather than electing to stay self employed and retires then the employer will have to continue to pay employer contributions whilst the individual moves to Class 3 non employed status. However if they stayed self employed they would only pay Class 3 and not the employer contributions. Therefore if you plan to retire within the next 5 years you should consider making the election and we are here if you wish to discuss.
* These are the rates currently proposed for 2025
Secondary Pensions implications
One knock on effect is that this owner then falls into scope for secondary pensions which was not the case up until now. If the company is running an existing payroll and secondary pension scheme then the person can just join the company scheme.
However, in some cases the ONLY employee is that same owner / employee. In this scenario the company can effectively issue the owner / employee with an appropriate Notice and the owner can opt out. This is a little bit of admin at the start but there is no need to set up a pension scheme that the person isn’t going to use.
Please note that where there is only one person on a payroll (i.e. the owner / employee scenario that we are discussing here) the commencement date is 1 October 2025.
Where individuals do wish to take up the secondary pension approbated (approved) individual RATS products are available on the island.
There are a number of pension providers on the island as well as the Guernsey YIP scheme and so, as a next step, we encourage you to get in touch with a provider to discuss your own circumstances. They will be able to advise on the options available and how to deal with the opt out process if relevant.
Action Required
The owner needs to be included on the company payroll as employed for tax and social security, and stop payment of any social security outside the system.
The owner will also fall into scope for secondary pensions.
If you do wish to remain classified as self employed, you can elect to do so for a period of five years. Once made, this election will be irrevocable, and your contribution classification will remain as self-employed until 31st December 2029. To make this election, please email [email protected] by 31 December 2024.
Please note that if you carry out any additional self-employed work as a sole trader, you will remain liable to pay a self-employed contribution on those earnings.
