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Partnership between two Ltd Companies

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    Partnership between two Ltd Companies

    Hi all,

    Looking for some advice. I currently work through my own limited company. Most of my work is what I'd call traditional contracting for x months on client's site. However, I do also do a few free lance projects when time allows working directly with clients and recently demand on this is increasing. This is what I really enjoy and what I'd like to do more of in the future giving greater flexibility and potentially, more money to be made.

    I have an ex perm colleague who is in a very similar position to me and we've spoken about joining forces. We've worked on some projects together already. The way that I would see this working would be we create a new joint co. All invoices for any work we do get paid into that company and then we pay our individual ltd companies consultancy fees. This would allow us to have our own companies set up how we want as currently, for example my co is 60/40 split with my wife and I think his is a different split with his wife.

    Another alternative if the above isn't the best way would be to split the joint co between myself, wife, partner and his wife in the example above, I'd own 30%, my wife 20% etc. Myself and potential partner would be employees of the joint co and no longer need our individual companies.

    I will be seeking advice from my accountant on this but wondered if anybody was aware of any reason why this wouldn't make sense from an accounting/tax point of view. For example, we're both currently on the VAT flat rate scheme and I think the limit to join is £150K which as a joint co we'd probably exceed.

    Thanks in advance

    #2
    Originally posted by cityben View Post
    Hi all,

    Looking for some advice. I currently work through my own limited company. Most of my work is what I'd call traditional contracting for x months on client's site. However, I do also do a few free lance projects when time allows working directly with clients and recently demand on this is increasing. This is what I really enjoy and what I'd like to do more of in the future giving greater flexibility and potentially, more money to be made.

    I have an ex perm colleague who is in a very similar position to me and we've spoken about joining forces. We've worked on some projects together already. The way that I would see this working would be we create a new joint co. All invoices for any work we do get paid into that company and then we pay our individual ltd companies consultancy fees. This would allow us to have our own companies set up how we want as currently, for example my co is 60/40 split with my wife and I think his is a different split with his wife.

    Another alternative if the above isn't the best way would be to split the joint co between myself, wife, partner and his wife in the example above, I'd own 30%, my wife 20% etc. Myself and potential partner would be employees of the joint co and no longer need our individual companies.

    I will be seeking advice from my accountant on this but wondered if anybody was aware of any reason why this wouldn't make sense from an accounting/tax point of view. For example, we're both currently on the VAT flat rate scheme and I think the limit to join is £150K which as a joint co we'd probably exceed.

    Thanks in advance
    I did exactly this and got stung by the HMRC as they claimed the companies were associated and therefor I was kicked off the VAT flat rate scheme. Reading the rules strictly speaking I shouldn't have been kicked off it, but you try to argue with the HMRC. I proved several times I should not be kicked off but they found another reason why this was not allowed. In the end I surrendered as I didn't fancy them kicking off another investigation.

    Would I do it again? Absolutely not.

    Comment


      #3
      Ok so would need to opt out of flat rate scheme potentially by the sounds of it

      Comment


        #4
        How about forming a limited liability partnership, with your respective companies as the partners?
        Down with racism. Long live miscegenation!

        Comment


          #5
          Originally posted by NotAllThere View Post
          How about forming a limited liability partnership, with your respective companies as the partners?
          I've not heard much about LLPs apart from lawyers. I'll have a read, thanks

          Comment


            #6
            Originally posted by NotAllThere View Post
            How about forming a limited liability partnership, with your respective companies as the partners?
            I've read a bit into LLPs. Unless I'm misunderstanding it, looks like it would be paying a lot more tax

            Comment


              #7
              Honestly, the complicated share structure sounds like a recipe for confusion/disaster for me.

              I think your first idea of setting up a new company and then having your respective companies invoice it sounds a lot simpler and other than potential VAT issues I can't think of too many complications. Coming off the flat rate scheme for VAT wouldn't be a bad idea and you wouldn't want the new company to be on the FRS anyway, otherwise it wouldn't be able to reclaim the VAT your company charges it.

              Comment


                #8
                Yeah, briefly checked with my accountant and he said LLP wouldn't be tax efficient and another company we both invoice would be best but all 3 would need to NOT be in FRS

                Comment


                  #9
                  Originally posted by cityben View Post
                  Yeah, briefly checked with my accountant and he said LLP wouldn't be tax efficient and another company we both invoice would be best but all 3 would need to NOT be in FRS
                  Out of interest, did he say that all three companies would be treated as linked for VAT purposes? I'm assuming they potentially would be.

                  Comment


                    #10
                    Partnership between two Ltd Companies

                    Originally posted by TheCyclingProgrammer View Post
                    Out of interest, did he say that all three companies would be treated as linked for VAT purposes? I'm assuming they potentially would be.
                    Yes and cited this https://www.gov.uk/government/public...ractice-4-1983 (point 4)
                    Last edited by cityben; 15 October 2015, 13:54.

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