One Ltd Co with 3 Directors all on different contracts??

[JudoStu]

Hello guys,

Got a bit of a strange queston for you and something I've not come across before.

A couple of friends are looking to go into contracting and have spoken to an accountant and she recommended the following setup, where we all join forces and work through the same ltd co:-

• New ltd co setup with the three of us all as directors.
  
• Each of us are assigned the same amount of shares but on a different class to help differentiate between the invoicing amount.
  
• We all take a small salary (circa 10k) and the rest of the money we've invoiced (minus CT, VAT etc) is then paid to us as a divi every quarter.

The accountant is very experienced and says that by operating the company this way we are helping to avoid IR35 due to the way the company operates. She apparently has many contractors who operate this way and have never had any problems with HMRC etc investigating.

Just wondering if this is a common setup? I currently have my own ltd co but the 3 of us are looking to start doing more consultancy work on the side which is one of the reasons for all teaming together. This extra work wouldn't start for about 12 months.

Opinions, good or bad welcomed.

[Sockpuppet]

Good in a sense. But there are drawbacks.

It won't make you outside IR35 by default. Yes it will help but if the contract states that you are doing the work, not substitution, D&C, moo etc then you are still IR35 caught.

[Sat in the Middle]

Ensure you have considered the MSC Legislation fully. You could unwittingly become caught and therefore have to pay yourself full PAYE with no expenses.

[JudoStu]

Good in a sense. But there are drawbacks.

It won't make you outside IR35 by default. Yes it will help but if the contract states that you are doing the work, not substitution, D&C, moo etc then you are still IR35 caught.

This is what I thought as well, as I was under the impression IR35 is based on the contract and not how the company operates. The accountant did say that if you could get your name removed and only have the company name specified in the contract that this would greatly help towards beating IR35.

So, I suppose what I'm getting at is if this setup is a better option than a one man ltd co like the majority of us are? (Obviously you need to trust the people you're in business with so can't just be some strangers off the street).

Thanks for your help.

[Fred Bloggs]

Wasn't that exactly how "Composite Service Companies" were set up? Look what happened to them. Legislated out of existence as MSC's. I foresee trouble if it is the accountant who does all the number crunching deciding who gets what in terms of pay/divis etc...

[shelby68]

I'd guess your combined income would put you company turnover outside the upper limit for qualifying for the Flat rate VAT scheme, being as this can make you 4.5% a year on the VAT alone, I'd take a look at that as well before deciding.

[TheFaQQer]

The accountant is very experienced and says that by operating the company this way we are helping to avoid IR35 due to the way the company operates. She apparently has many contractors who operate this way and have never had any problems with HMRC etc investigating.

Can't see it helping IR35 any - it's assessed on each contract that the company undertakes, unless you own under 5% of the company.

Might push you over the flat rate VAT threshold, so your VAT returns become more complicated and you lose any potential saving there.

Why get together? Unless you are looking to build some kind of consultancy that eventually employs more people, I can't understand the logic of throwing your lot in with a couple of other people.

The only thing I can see this saving on is the three company setup fees, and possible accountancy costs (although this is by no means a given, since the accounting is more complex).

[swamp]

If you all have a similar skill set then you may be able to substitute each other. This will guarantee you remain outside IR35 (for that contract).

[JudoStu]

Thanks for all of the advice so far.

I've checked the VAT flat rate threshold and we would easily beat that, between the 3 of us the turnover would be approx £250k.

We are all of a very similar skillset, we all do pretty much the same job which was one of the reasons for joining forces to help towards the substitution. Another reason was because we do want to start doing consultancy and training work on the side, with an aim to stop contracting in 2-3 years.

The accountant wouldn't be the one telling us "you are allowed X amount this month" she would simply be saying "you've invoiced X, you're basic salary is Y and so you have Z available for a dividend, it's up to you how much you take". This is the way Nixon Williams work so I'm sure this is safe.

[sidknows]

which 'accountant' told you this ?
As each contract is treated separately , you are leaving yourself open to enquiries and with 3 contractors operating through it , possibly more scope for revenue to investigate

Additionally it has a resemblance to an MSC