PAYE employee

[punkie]

Hey chaps , it’s really a useful site here! I’m new to contracting in UK having a decent previous permie experience, currently in my second month with Parasol and thinking of forming a LTD later…
I’m still not very clear about one thing – what’s the legal background of the position of a “PAYE” employee (compared to a regular permie)? What’s the difference? Am I an employee of Parasol or not? Any links where I could find more?
One of the reasons why I’m asking this is that once I have my own LTD I’m thinking to contact couple of my old poor permie friends from my home country and eventually flood the UK market with skilled hard working contractors , and eventually employ(?) them in my LTD…(they would go through an umbrella anyway)
I’m not about to make a profit of their contracts, rather to help them in the beginning and make them to build up the portfolio of my LTD, maybe to help me to get non-IR35 contracts...; so I'm trying to find a safe and easy and tax effective way how to bring them in – potentially I could make them shareholders…? but don't want to get into risking the income of my contracts (as long as I am a Director and have most of the shares, I'm able to decide how to pay the dividends, correct?). Althgough that would not give them much security...
Any thoughts?
Thanks

[punkie]

hm, I've posted 666th thread in the Accounting/Legal

[XLMonkey]

Punkie, this is a real "do your own research" one. There's lots of good, pre-written material that will answer some or all of your questions on the pcg website (www.pcg.org.uk).

on your specific questions
- what’s the legal background of the position of a “PAYE” employee (compared to a regular permie)?

There is none, they are the same thing. If you are permanently employed, then you should be paid and your income taxed using PAYE.

- Am I an employee of Parasol or not?

Dunno, don't think so, but Parasol themselves are the ones to ask.

- I’m not about to make a profit of their contracts, rather to help them in the beginning and make them to build up the portfolio of my LTD, maybe to help me to get non-IR35 contracts.

Generally, the IR35 status of your own contracts has nothing to do with employing other people, it's what's written in the contract itself that matters (though if you have more than one person on the books then it can help win a more general argument about being in business on your own account).

- I'm trying to find a safe and easy and tax effective way how to bring them in – potentially I could make them shareholders…? but don't want to get into risking the income of my contracts

Umbrella companies are one way of running multiple contractors and keeping the income separated. However, bear in mind that umbrella companies such as parasol are (for all their weaknesses), specialists in the business of administering umbrella arrangements. You need to make your mind up whether you want to run a contracting business, or a contractor administration business....;-)

Partnerships are another way of tracking separate peoples contribution to a business (many successful small contracting/consulting businesses end up going down the partnership route, as it makes the administration of shares and dividends a little easier to manage). Again, depends on how well you know these friends and the extent to which you are likely to sell in and do complementary work.

Alternative is simply to ask them for an introduction fee/commission for getting them a contract and then helping them set up on their own.... it's attractive to try to build a multi-contractor business, but in practice lots of hard work and the pay-off takes a while in coming.

argh, what am I saying, just read up on the PCG website first, their advice will be better than mine anyway

[punkie]

Yes, sir, I'll do the research. Thanks for the reply though!

There is none, they are the same thing. If you are permanently employed, then you should be paid and your income taxed using PAYE.

- Am I an employee of Parasol or not?

Dunno, don't think so, but Parasol themselves are the ones to ask.

I think this is the response to my question: (taken from Parasol's Terms and Conditions):
"From the Commencement Date you shall be our employee and the date your
continuous employment with us commences is the Commencement Date".

Generally, the IR35 status of your own contracts has nothing to do with employing other people, it's what's written in the contract itself that matters (though if you have more than one person on the books then it can help win a more general argument about being in business on your own account).

The only point behind my idea is to make them to work under one name and possibly later to be able to get some direct/bigger/better contracts as we would be able to get on our own (we all have similar skillset which is quite specific and bound to one company/product).
Regarding the IR35 - that was exactly my point, resp. I was thinking about the substitution clause in the contracts (that would be easier to get I guess) which is a big IR35 pointer I believe...

Partnerships are another way of tracking separate peoples contribution to a business (many successful small contracting/consulting businesses end up going down the partnership route, as it makes the administration of shares and dividends a little easier to manage). Again, depends on how well you know these friends and the extent to which you are likely to sell in and do complementary work.

I'm going to take a look at the Partnership, however I think there are some issues with the Partnership when getting into contract relationship with Agencies - compared to LTD?? (I'm not sure about this..)

[malvolio]

Probelm with partnerhips is what happens when one of the partners drops out or ceases to add value. What happens to the now lopsided legal entity?

For that reason, consider a collaborative model: a less formal structure where pieces of work are undertaken by a combination of people via their own companies. Nothing to stop you being involved in all of them and finding the original work, of course, but you can pick up and put down people as necessary.

You would still have to work out how to handle the basics such as market presence, commercial confidentiality and payment for use of the collaboration's name and presence, but that is really simple.