My brother and I started contracting! Any advice re: Ltd company??

[KILOCHARLIE]

Many thanks for the replies guys, both positive and negative alike. £37k each a year is good for both of us so I'm unsure what type of contracting some of you are doing but for non londoners such as ourselves and without any niche professional qualifications, we are both quite happy.

As for whether its worth it on our paltry wage, without the 25% ni fees plus the umbrella fees, it seems to work out as a 10k saving each for us over a year which is a large amount of money to us guys.

Thanks for the advice re: my mum too. Yes after some reading I appreciate the rent question may have been silly but this is all new to me so please forgive the ignorance. If she were to be on the payroll too it would be for services rendered such as invoicing, accountancy and making our lunches (just a joke people) but will have to look into her situation before doing it.

Still grateful for any advice regarding whether its better for both of us to be directors or if its better to have one as a director and one as an employee of the company. As I understand it we can both have 50/50 shares in the company either way (classed a and b respectively should we ever wish to change the ratio) but I am unsure of the other implications. I appreciate the chance of it getting messy if we were to fall out but thats something we both feel very unlikely and something are willing to ignore even if just for the purposes of our query for the time being.

Thanks again for any help and again grateful for any further advice.

[JB3000]

Still grateful for any advice regarding whether its better for both of us to be directors or if its better to have one as a director and one as an employee of the company. As I understand it we can both have 50/50 shares in the company either way (classed a and b respectively should we ever wish to change the ratio) but I am unsure of the other implications. I appreciate the chance of it getting messy if we were to fall out but thats something we both feel very unlikely and something are willing to ignore even if just for the purposes of our query for the time being.

Thanks again for any help and again grateful for any further advice.

Using one company will be messy from a profit/tax/dividends point of view (not a falling out point of view). For example, if one of you has a low daily rate but relatively high expenses (compared with the other) it is going to be a difficult and time consuming process to unpick all the income, flat rate scheme gain from being VAT-registered, expenses and corporation tax that relates to each of your respective contracts. This time consuming unpicking will need to occur in order pay dividends according to the share structure (which is already more complex than the share structure in most contractor companies). Whereas through separate limited companies all the mess, confusion, complexity and time wasting will be automatically eliminated.

Feel free to work through one limited company however you will quickly realize it is a paper trail nightmare, and you are going to have to fire off numerous unnecessary emails to your accountant in order for your accountant to painstaking put together two sets of accounts (one for you and one for your brother for profit, tax and dividend purposes) and then consolidate them in order to form a singe overall set of limited company's accounts.

Given the share structure and the need for two accounts to be consolidated I would definitely go to a more well established firm of accountants, e.g. SJD, Clear Sky, or Nixon Williams. Don't bother going to a cheap as chips firm as this type of firm is only going to make things worse. Also, given the additional work that the accountant will need to perform you are likely to face additional charges.

I'm not sure why you are so hung up on the 2 directors Vs. 1 director and 1 employee point- what is all the fuss about? What is the point you are trying to make or are worried about here? Given you are both working through the company it makes sense for both of you to be directors.

[mudskipper]

Even if mum did some genuine work for her salary it would be ineffective overall due to changing her benefit entitlement.

I think this needs emphasising - even if you can justify paying mum a wage, she would probably lose more than the tax saving in benefits.

[KILOCHARLIE]

Using one company will be messy from a profit/tax/dividends point of view (not a falling out point of view). For example, if one of you has a low daily rate but relatively high expenses (compared with the other) it is going to be a difficult and time consuming process to unpick all the income, flat rate scheme gain from being VAT-registered, expenses and corporation tax that relates to each of your respective contracts. This time consuming unpicking will need to occur in order pay dividends according to the share structure (which is already more complex than the share structure in most contractor companies). Whereas through separate limited companies all the mess, confusion, complexity and time wasting will be automatically eliminated.

Feel free to work through one limited company however you will quickly realize it is a paper trail nightmare, and you are going to have to fire off numerous unnecessary emails to your accountant in order for your accountant to painstaking put together two sets of accounts (one for you and one for your brother for profit, tax and dividend purposes) and then consolidate them in order to form a singe overall set of limited company's accounts.

Given the share structure and the need for two accounts to be consolidated I would definitely go to a more well established firm of accountants, e.g. SJD, Clear Sky, or Nixon Williams. Don't bother going to a cheap as chips firm as this type of firm is only going to make things worse. Also, given the additional work that the accountant will need to perform you are likely to face additional charges.

I'm not sure why you are so hung up on the 2 directors Vs. 1 director and 1 employee point- what is all the fuss about? What is the point you are trying to make or are worried about here? Given you are both working through the company it makes sense for both of you to be directors.

Thanks for the reply. The idea of one company came about to try and make things simpler, which from your post doesn't seem like it make be the case. Another contractor in the same company suggested it as thats the method she uses with her son who also works there. The reasoning was that both me and my brother will both be on the same rate, doing the same hours and have the same expenses. We assumed this would be very simple as everything would be split down the middle. We would also have the benefits of only paying one set of accountancy fees and one proffesional indemnity policy between us. We were also told as 1 director & 1 employee vs 2 directors would ensure we are outside of IR35 and also make it simpler on who's responsibility it is to ensure we have accountancy and insurance stuff sorted for the both of us.

With regards to the flat rate VAT scheme. Will we be better off in 2 companies regarding this or does it make no difference? I've not looked into the details of this at all yet as we have no idea whether being VAT registered will benefit us at all, even more so if we have relatively low expenses compared to most.

Thanks again for the info. I definitely need to get an accountant's advice but I'm trying to get as much knowledge beforehand so I'm at least aware of the different options available to us before getting led down the right or wrong path.

[TheFaQQer]

The reasoning was that both me and my brother will both be on the same rate, doing the same hours and have the same expenses.

That's worryingly naive, unless this is only a short-term plan. What happens when one of you gets a rate rise and the other doesn't?

We were also told as 1 director & 1 employee vs 2 directors would ensure we are outside of IR35

Whoever told you that was either winding you up or has no understanding of how IR35 works.

[JB3000]

Thanks for the reply. The idea of one company came about to try and make things simpler, which from your post doesn't seem like it make be the case. Another contractor in the same company suggested it as thats the method she uses with her son who also works there. The reasoning was that both me and my brother will both be on the same rate, doing the same hours and have the same expenses. We assumed this would be very simple as everything would be split down the middle. We would also have the benefits of only paying one set of accountancy fees and one proffesional indemnity policy between us. We were also told as 1 director & 1 employee vs 2 directors would ensure we are outside of IR35 and also make it simpler on who's responsibility it is to ensure we have accountancy and insurance stuff sorted for the both of us.

With regards to the flat rate VAT scheme. Will we be better off in 2 companies regarding this or does it make no difference? I've not looked into the details of this at all yet as we have no idea whether being VAT registered will benefit us at all, even more so if we have relatively low expenses compared to most.

Thanks again for the info. I definitely need to get an accountant's advice but I'm trying to get as much knowledge beforehand so I'm at least aware of the different options available to us before getting led down the right or wrong path.

Just because you both have similar contracts now doesn't mean you will have similar contracts going forward. One of you may find yourself out of contract and on job seekers, while the other moves onto a higher daily rate. Then what will you do in terms of salary, profit, dividends, expenses, tax? How much of the bank balance will own after being out of contract for 6 months and how much of the bank balance will your brother own? This is a recipe for disaster. It is worth noting that there is an element of risk inherent in contracting as contracts get cancelled and at some point all contracts end (hence many contractors having to claim JSA).

The 2 director (inside IR35) vs 1 director and 1 employee (outside IR35) is complete rubbish and shows you simply haven't done any basic research on IR35. It is obvious you don't know what IR35 even is.

Given the daily rates are very low there is no difference with regards to the flat rate scheme for VAT. If you have low expenses that flat rate scheme for VAT will benefit you more compared with the standard scheme for VAT and not being VAT-registered at all.

[Contreras]

We were also told as 1 director & 1 employee vs 2 directors would ensure we are outside of IR35 ...

You were misinformed. If the fee earners are shareholders then IR35 applies, even if neither is director.

I'm not sure what you hope to gain by setting up a joint company. Reduced accountancy fees maybe, but definitely not by half, and not in itself worth the aggravation IMHO.

Unless there is a synergy that makes this a truly joint venture, i.e. you are performing different functions in support of each other, where the whole is greater than the sum of parts, then I'd forget it if I were you.

[Scruff]

You are completely deluded. Better off each under an umbrella, since at least that way, you will pay your taxes and keep your mum on the dole. The taxman will also leave you alone and no accounting dilemmas.

Ave Maria