Ltd Company, Partnership?

[nullfork]

Hi all,

Originally posted in the wrong forum, apologies for the cross-post..

I'm looking for some ltd company advice.

I'm contracting through my own ltd (outside IR35), paying myself £850 salary a month and taking dividends every 4-6 months. My girlfriend is moving from umbrella to ltd (also outside IR35) and I was wondering if instead of her setting up her own ltd she could have her earnings payed into my ltd company?

I figure there's a few options.

1. Keep me as the only employee, have her as a shareholder, and pay her out of dividends only (probably not tax man friendly).

2. Add her in as an employee of the company, pay her the same salary as myself and also add her as a shareholder (paying her dividends).

3. Add her in as an employee of the company, pay her the same salary as myself but don't add her as a shareholder, instead just pay her the salary and I personally transfer some money into her personal account out of my (now extended) dividends.

Or is it better she setup her own ltd?

I figure number 2 is more sensible (as it's more tax efficient than 3), but I don't want the company to appear as though it's perfoming some sort of "income sharing"/tax related dodge.

I also figured maybe having two employees means less likely to be investigated by HMRC also..

Opinions? :-)

P.S. Our combined turnover would be circa £150k

Thanks!

Stuart

[Ardesco]

As stated in the last thread you created....

Let her create her own separate LTD Co for a couple of reasons:

• New income sharing legislation from HMRC may well mean the government tries to get any dividends paid to the lower earner classified as income earned by the higher earner resulting in an increased tax burden (Stupid badly though out laws that nobody knows how they are going to implement yet...)
• If it all goes a bit Pete Tong and you break up you don't then have to fight over who owns what in the company.

Generally speaking don't get yourself into financial arrangements with your girlfriend, it may seem like a great idea right now but a couple of years down the line it could end up being a whole load of tulip that you didnt want.

[Ardesco]

I also figured maybe having two employees means less likely to be investigated by HMRC also..

Shouldn't make any difference at all. With the new income shifting legislation coming in companies that only have two employees are probably going to be come first point of call....

[SueEllen]

Set up two separate companies.

It would make life easier for both of you as if you split up you won't be arguing over who owns what.

Even if you don't split up having 2 separate companies and each of you owning all the shares from your respective company means you will never fall under the incomes shifting legislation. For example if in a year you work 100% of the year but your partner only works 25% of the year, and she owns half the shares HMRC would consider you income shifting. I suggest you read the legislation yourself to see why a partnership of any sort would be a bad idea:

http://www.hm-treasury.gov.uk/consul...e_shifting.cfm

[nullfork]

Thanks for the replies, I shall read the official legislation..

How about if she was just an employee and not a shareholder?

BTW I hear what you are all saying about "if we split up" / etc.

Stuart

[Nixon Williams]

My advice would echo what has already been said.

Keep it separate with two companies, reasons being:

1. Income splitting/s660 issues
2. Flat Rate VAT - the larger turnover may preclude you from joining
3. No issues if the relationship breaks down

Alan

[Ardesco]

Thanks for the replies, I shall read the official legislation..

How about if she was just an employee and not a shareholder?

BTW I hear what you are all saying about "if we split up" / etc.

Stuart

What would be the point?

Income shifting legislation could still come into effect and knock you into the higher tax band, but you would also just be paying more tax in general if not giving her any divvies. If she has her own company she can get divvies, no income sharing legislation, job done.