Newbie Question - Project based work

[coolpran]

******* NEWBIE ALERT ********
I have always been a permie and know very little about contracting
******* NEWBIE ALERT ********

A friend of mine working for an energy company has asked my wife (who is unemployed) to do a small project for his company.

It will be a "fixed price" project to create a web-application with the agreed scope with a fixed manday estimate.

But he says that billing needs to be done by an invoicing company.

Points to note here are:
1. My wife is unemployed.
2. The work will be entirely done from home with the client provided laptop & connectivity.
3. This will be a trial first project and hopefully lead to few more.
4. I am in a permanent job & a high-rate taxpayer.

After reading through http://www.contractoruk.com/first_timers/index.html site i think that there are 2 options available to her:

1. Limited Company

• Form a limited company (Company A).
• Ask an umbrella company (Company B) to do the invoicing for the contract for a fee.
• Company B will bill the client (Company C).
• Company B will pay Company A after deducting their costs.
• Company A will pay my wife after deducting taxes + NIC.

2. Join an Umbrella Company

• Register with an umbrella company (Company B)
• Ask Company B to sign the contract.
• Company B will bill the client (Company C).
• Company B will pay my wife after deducting costs + applicable taxes + NIC.

My questions are:
1. Am I right to think that these are the only options available?
2. Is there a 3rd option where Company A above (her limited company) can directly bill Company C (the client)?
3. Or does there always have to be an intermediary in between (Company B)?
4. Most importantly, what is the most tax efficient way to handle this ensuring maximum returns?

Could anyone with a similar experience please share thoughts and advise the most appropriate path.

[dotnetter]

Most tax efficient would would be to invoice the client directly from her ltd company surely.

I can't see why there would need to be an umbrella company involved.

The only reason to use an umbrella would be to avoid setting up a limited and would cost more in tax and fees I would have thought.

There are costs in setting up a limited but not much.

[Gonzo]

In option 1 you don't need company B.

Company A can invoice Company C directly.

The only advantage of having company B in this scenario is if Company A is not financially sound and then getting the money from them becomes Company B's problem. But that is not much of an advantage for the costs in this case by the sounds of it.

I am not an accountant. It is possible that there is more to this than meets the eye.

[coolpran]

thanks for the responses.

The only advantage of having company B in this scenario is if Company A is not financially sound and then getting the money from them becomes Company B's problem

Gonzo, in the response above, did u mean "Company C (the client) is not financially sound"?


Also, could anyone list down the exact steps I need to take for the Limited Company route, for e.g.
Step 1 - Form a limited Company A by going via http://www.contractoruk.com/online_c...ion_agent.html or similar
Step 2 - Prepare a project contract using XYZ template with defined project scope, Intellectual Property Rights and other clauses (any example would help)
Step 3 - Get the contract verified by an accountant Company B to ensure its upto mark and conforms to IR35
Step 4 - Carry out the project work and have Company A invoice the client Company C
Step 5 - Company C will pay to Company A
Step 6 - Company A will cut Income Tax, NIC and other expenses and pay remaining to my wife

I think I will still need to get help from an accountant company to take care of the company accounts, taxations, vat registration etc.

Please let me know which route I should take as all this is seeming too complicated now.

[oraclesmith]

Can you clarify the point about the need to bill through an invoicing company please ?

This could mean several things, the most convenient would be that it simply means the client wants a proper invoice from a registered firm or trader. If this is the case, then Mrs Coolpran just registers as a sole trader or sets up a limited company and sends an invoice to the client - job done.

[Sockpuppet]

WTF?

Set Up Company X (the one your wife will work for and own). Your mates company is company A.

Company X bills company A.

As for setting up the limited phone SJD, Darren or Nixon Williams (all post on here).

KISS - Keep It Simple Stupid

[XLMonkey]

Err, your best option depends on whether your wife expects to do more work in the same line of business.

If this sort of thing is going to happen again and again, you are best off setting up a limited company (as suggested by the other posters).

If this is really a one-off, then the effort (and time) involved in setting up a limited company and bank account is may not be worth it. You might be better off finding someone else - who already has a limited company - to enter into the contract and have that company pay your wife on a self-employment basis.

Reason I say this is that I've done this for someone else who was in a similar situation. If you need more information then PM me.

[coolpran]

The client has confirmed that he is happy to be billed by any registered company. Which means we will be going with a limited company and bill the client directly.

XLMonkey, I have sent you a PM.

thanks for your help everyone.