IT Contractor Considering Bankruptcy

[GenericITContractor]

If you make your wife or parents directors you will still fall foul of the law as you will in effect be a shadow director.

Hi,

I would be interested to know how I would be a shadow director? I would be an employee only of the company. With a wage taken out every month (from which the official receiver would work out any amounts to be taken I assume).

I wouldn't promote, or operate the company. My wife would do that herself.

[WordIsBond]

Hi,

Thanks for your responses so far.

The penalty was against a former company I was Technical Director of. The penalty was owing to essentially putting the wrong VAT number on purchases - the VAT was paid as part of another company (which has seen closed down), but the HMRC are chasing the company for the VAT on the original company, not the one on which it was paid. I then received a personal penalty of 50% of the amount.

This happened three years ago, prior to my contracting.

This is unclear to me. Did HMRC actually receive all the money they were supposed to receive, and it was all just a paperwork mistake, or is there actually funds missing?

You're talking about two different companies here. Are both of them closed down?

***

Side note, totally off-topic to this case, but this is a great example of why directors should receive compensation simply for being a director. There is potentially significant liability attached to the position. So if you make your spouse a director or secretary of your company, there should be non-negligible compensation for that liability. That is why HMRC is unlikely to ever challenge director's compensation of £8-10K for a Ltd pulling in £100K or more a year. It's too easy to argue that liability concerns make that level of compensation consistent with market value.

It is exactly because of this kind of situation that I've turned down directorships in friends' companies and would certainly not accept one in anyone's company without real compensation. And it is why I have no hesitation in paying my wife for being a director. If we mess up, she's on the hook, too. She should be paid for that liability.

[Old Greg]

This is unclear to me. Did HMRC actually receive all the money they were supposed to receive, and it was all just a paperwork mistake, or is there actually funds missing?

You're talking about two different companies here. Are both of them closed down?

***

Side note, totally off-topic to this case, but this is a great example of why directors should receive compensation simply for being a director. There is potentially significant liability attached to the position. So if you make your spouse a director or secretary of your company, there should be non-negligible compensation for that liability. That is why HMRC is unlikely to ever challenge director's compensation of £8-10K for a Ltd pulling in £100K or more a year. It's too easy to argue that liability concerns make that level of compensation consistent with market value.

It is exactly because of this kind of situation that I've turned down directorships in friends' companies and would certainly not accept one in anyone's company without real compensation. And it is why I have no hesitation in paying my wife for being a director. If we mess up, she's on the hook, too. She should be paid for that liability.

So I get why you pay your wife for having the role of Director, but why does she have the role in the first place?

[eek]

So I get why you pay your wife for having the role of Director, but why does she have the role in the first place?

Would access to the bank account if the worst happens valid enough...

[WordIsBond]

So I get why you pay your wife for having the role of Director, but why does she have the role in the first place?

So I don't have to muck with the bureaucracy and can spend my time earning money and commenting on CUK.

[Old Greg]

Would access to the bank account if the worst happens valid enough...

Can't Company Secretary have access?

[Old Greg]

So I don't have to muck with the bureaucracy and can spend my time earning money and commenting on CUK.

What bureaucracy is there that requires her to be a Company Director? Genuine question.

[eek]

Can't Company Secretary have access?

Company secretary has legal requirements which I wouldn't expect my wife to perform. You need to get the company return and accounts delivered

[WordIsBond]

Would access to the bank account if the worst happens valid enough...

Yes, that would be another reason. Though not for the usual reason, I've done very well for a long time and she'd have plenty of resources to take care of things until all the legalities could get sorted out.

But unlike most here, I have employees who have to be paid, so it would be irresponsible to not have a fallback if I die/become ill. Especially since I'm also older than most here, and she is a little younger than me and in better health.

In short, I have sound business reasons for having another director.

[WordIsBond]

What bureaucracy is there that requires her to be a Company Director? Genuine question.

She signs off the accounts, etc. A Company Secretary could do that as well, but would also have liabilities that would call for compensation. I don't see a substantive difference between secretary and director for purposes of this discussion.