Contracting Couples - How Should We Set Up A Limited Company?

[TheCyclingProgrammer]

Thanks for the quick replies. Seems it is a no-brainer then? 2 companies it is.

I don't see it as a no-brainer. If anything I'd be leaning towards one company but it really depends on multiple factors: your skill sets, the rates you'd both charge, your relationship and plans for the future etc.

Hypothetically, if my wife also did what I did, I'd choose to operate a single company.

[northernladuk]

True, although if OP and their partner have a broadly similar skill set its a good opportunity to present themselves as a multi-person business/consultancy without any personal service element - i.e. if they can both work on the same contracts together interchangeably then that would pretty much rule out IR35 being an issue.

Depends a lot on the sort of clients OP expects to have though whether or not this is realistic.

Absolutely. I was talking about the exact situation mentioned in the OPs post mentioning two different contracts and the generalisation that setting up a business in that way without regard to the actual work secured would make a difference to IR35.

[ASB]

So long as they are going into business as a joint venture, then any settlements noise HMRC would make would fail at the first hurdle - there wouldn't even be a "settlement" as there is no element of bounty. People, including partners and other family members, go into business all the time. Its a non-issue.

My thought was that if the income generated was substantially different. e.g. one bills 100k and the other 25k and there was a 50/50 shareholding then HMIT might attempt to consider a settlement; the bounty being the right to income gained by the 50% shareholding.

However I do not think there is a significant risk. There has to be a large area of latitude and as you quite rightly state folk go into business this way all the time.

(As it happens ex Mrs ASB held 40% of myco from when she contracted and continued to receive 40% of the dividends after she had taken a job elsewhere. In one of the investigations the inspector did ask for an explanation but having outlined how it came to be was perfectly happy)

[ChapSmurf]

To the OP. IR35 is on a contract by contract basis. Setting the business up as you suggested wouldnt make an difference if you are on different contracts. Very important to get your head around IR35 quickly.

I kind of of understand IR35 from contracting before but I have a lot more to learn if truth be known. It would be differenct contracts we were on, even though we will hopefully be working for the same company. We would also be on the same day rate and this would be through the same agency, although the latter probably makes little difference.

I keep seeing the term "settlement". Sorry if I am being stupid, but is this in reference to settlements with HMRC for things like CT and VAT? We would both register on the flat rate VAT scheme.

[northernladuk]

I kind of of understand IR35 from contracting before but I have a lot more to learn if truth be known. It would be differenct contracts we were on, even though we will hopefully be working for the same company. We would also be on the same day rate and this would be through the same agency, although the latter probably makes little difference.

I keep seeing the term "settlement". Sorry if I am being stupid, but is this in reference to settlements with HMRC for things like CT and VAT? We would both register on the flat rate VAT scheme.

I can't believe for one minute you are going to always be on the same day rate and through the same agent. You need to think a bit longer term and a bit more realistically IMO

You also need to engage a professional and get proper advice and get it explained in detail so you fully understand it. This isn't really a decision to be made off the back of a load of people on an internet forum.

[ChapSmurf]

I can't believe for one minute you are going to always be on the same day rate and through the same agent. You need to think a bit longer term and a bit more realistically IMO

You also need to engage a professional and get proper advice and get it explained in detail so you fully understand it. This isn't really a decision to be made off the back of a load of people on an internet forum.

Totally agree. The chances of us both being on the same rate, through the same agent are rare, so we are both thinking longer term than just this one contract (each). And while forums can point you in the right direction, I do appreciate it is only that and that I need to get some professional help on this. The account we use knows this area well but again if anyone can suggest someone to talk to I would be all ears.

We are both PMs by the way. I am a Technical PM, my partner is more Business aligned. Again, not sure if this makes a difference or not with regards to running one company.

I have opened a can of worms by the looks of things. I now have more questions than answers, but that is a good thing of course.

[ASB]

I keep seeing the term "settlement". Sorry if I am being stupid, but is this in reference to settlements with HMRC for things like CT and VAT? We would both register on the flat rate VAT scheme.

Basically anything can potentially be a settlement. Where it is the tax consequences fall upon the settlor (the donor). HMRC have some success in establishing settlements and some notable failures.

In essence what they are trying to achieve is that you do not give away your income and those taxation consequences fall elsewhere (at a reduced rate).

e.g. employ 10 unworking members and pay them 10k a year each neatly using thier nill rate band. Then that income flow back to you.

Another example might be to have a non working partner/spouse as a 50% shareholder (potentially covered by different parts of the legislation) thus receiving half the profits. HMRC might like to view this as a settlement where it is a couple. (In effect they could use 2 x 20% tax bands).

Look up Arctic systems for some information on HMRC thinking (previous). They lost.

The old (now out of data and not updated) practitioners guide can be found here. It is worth a read to see the sort of things that HMRC have (or had) in their sights. I don't think it is something to worry about - provided you can show reasonable commercial justification for whatever you enter into.

http://webarchive.nationalarchives.g.../guide_sba.pdf

[SueEllen]

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We are both PMs by the way. I am a Technical PM, my partner is more Business aligned. Again, not sure if this makes a difference or not with regards to running one company.

In theory you could have a contract where one of you could substitute for the other especially if the role involved both your skill sets.

I've been at a client where a husband and wife team did this. Though what really happened was one would work 3 days of the week at that client, the other would work 2 days per week and everyone was aware who was in when.

Here having one company would make invoicing easier than if you had 2 separate companies. However if it this starts happening on more than one contract then yes setting up as one company would be a future option.

[ChapSmurf]

Basically anything can potentially be a settlement. Where it is the tax consequences fall upon the settlor (the donor). HMRC have some success in establishing settlements and some notable failures.

In essence what they are trying to achieve is that you do not give away your income and those taxation consequences fall elsewhere (at a reduced rate).

e.g. employ 10 unworking members and pay them 10k a year each neatly using thier nill rate band. Then that income flow back to you.

Another example might be to have a non working partner/spouse as a 50% shareholder (potentially covered by different parts of the legislation) thus receiving half the profits. HMRC might like to view this as a settlement where it is a couple. (In effect they could use 2 x 20% tax bands).

Look up Arctic systems for some information on HMRC thinking (previous). They lost.

The old (now out of data and not updated) practitioners guide can be found here. It is worth a read to see the sort of things that HMRC have (or had) in their sights. I don't think it is something to worry about - provided you can show reasonable commercial justification for whatever you enter into.

http://webarchive.nationalarchives.g.../guide_sba.pdf

Thanks ASB. I appreciate your pointer on this and will look in to it.

[d000hg]

I don't know if you would expect to pay double on all fees. Your accountant may offer you some sort of deal or at the very least it is worth asking when you talk to different accountants.