Husband and wife contracting through same Ltd Co. - good or bad idea?

[Robot]

As my wife works in the educational sector then I suspect she will charge very little VAT (schools are exempt, apparently).

BTW I've just spoken to the accountant and he recommended separate companies.

Did the accountant mention any problems with a teacher working through a third party? I’m sure there is a problem with teachers and nurses working through a third party, something to do with national insurance, you should get it checked out, before you embark on setting up a Limited company for her.

[ASB]

1. Only if you want to. If he's happy not having a salary then that's fine, assuming he's not going to sue you at a later date! You may want to pay a small salary anyway as that would result in him getting a tax refund if he's taking a sudden drop in pay. It's a refund he'd get anyway, but this way you get the refund now rather than waiting until after the tax year ends next April.

Isn't there now a potential problem?

If Mr Kay is not a director then NMW must be complied with. If he is actively contracting and only being paid £100 per month then it seems unlikely that this is the case. Given HMRC now enforce minimum wage (rather than it needing a complaint) then in the event of a PAYE investigation if it cannot be proved he has been paid NMW then an enforcement and consequent penalties would ensue. Of course the OP may choose to ignore this potential eventuality.

If Mr Kay were made a director (even without a shareholding) then provided there is no contract of employment the NMW will not apply and this potential problem would be avoided.

[Wanderer]

1) Should I make MrKay a director of the company? I am worried that as an employer, the Ltd Co is not paying MrKay a salary while he is now a full time employee.
2) Is it risky for husband and wife to contract through the same Ltd Co? as far as s660 is concerned?

1) I would say yes, appoint him as director because if either of you should become incapable of running the company, the other director could take over. It may also wipe out some of the red tape regarding employees rights (like maybe NMW) as most of them don't apply to directors. Get a proper accountant to advise on this though.

2) No, quite the opposite because it may be a good IR35 pointer since you would be a proper family business where you could potentially be both working on each other's contracts (exercising a right of substitution) which would give HMRC a real headache if they ever tried to pin IR35 on you.

[MrsKay]

Thank you.

Thank you, Clare, Craig, ASB and Wanderer for all your useful advice.

MrsKay

[d000hg]

Not sure how Taking Dividends will cause problems..... You take Divvis from the Company profit based on your shareholding (nothing to do with how the company earns profit).... You (should) declare this on your Tax SA...... just as if you had shares in IBM and they pay a Divvi
ie You own about 0.00001% of IBM so you only get a little bit - but the principal is the same.
You can own shares in as many companies as you like.

Isn't the difficulty the lack of flexibility - if you take the majority of the money out through dividends, you are locked to taking the same relative amounts every time based on shareholding.

[craig1]

Isn't the difficulty the lack of flexibility - if you take the majority of the money out through dividends, you are locked to taking the same relative amounts every time based on shareholding.

That's one of the secondary reasons I do my work through an LLP with my wife as the other fee-earning partner. We generally work on an "eat what you kill basis" once the annual profits get to the point we're into the 40% tax bracket. Our partnership agreement reflects that split and it has worked well for us over the years.

[Greg@CapitalCity]

Isn't the difficulty the lack of flexibility - if you take the majority of the money out through dividends, you are locked to taking the same relative amounts every time based on shareholding.

This seems to be a common theme. If MrsKay is going to gift shares to MrKay at some point down the track, why not also change the class of shares to enable flexibility in dividend payments between shareholders? So long as the shares hold the same rights, then the S660 argument is the same whatever way you look at it. To ensure the gift of shares is outright, avoid dividend waivers, and pay dividends into separate bank accounts for each shareholder.

[Fred Bloggs]

1) I would say yes, appoint him as director because if either of you should become incapable of running the company, the other director could take over. It may also wipe out some of the red tape regarding employees rights (like maybe NMW) as most of them don't apply to directors. Get a proper accountant to advise on this though.

2) No, quite the opposite because it may be a good IR35 pointer since you would be a proper family business where you could potentially be both working on each other's contracts (exercising a right of substitution) which would give HMRC a real headache if they ever tried to pin IR35 on you.

Both working through the same Ltd Co is an excellent way of working IMO, however, it will have absolutely no bearing whatsoever on IR35 status. IR35 bolis down to mutuality of obligation, direction/control and subsititution rights and nothing at all to do with whether you are a one or two person business.

[Guilefox77]

Same Boat

Sorry I am hijacking this thread but my situation is similar.

I’ve been contracting via my own limited company for nearly two years.

My partner (we are not married) has recently started a contract too (she is registered at another house (bills, electoral roll) so in every way legally there is no connection between us).

I think we have these options:

1) She works through her own umbrella/agency completely separate to me on PAYE.
2) I make her a director AND a shareholder of my company and pay her minimum wage and dividend relative to her shareholding.
3) I make her a shareholder only and “subcontract” work to her through my company (although she works as an Internal communications manager and I’m an IT project manager) so different business areas.
4) She starts up her own company and works through that.

We are both charging VAT on our invoices, and my company is VAT registered and I use flat rate scheme to make savings.

From what I've read so far opinion seems slightly divided. A 2nd company admin and year end accounts is no fun, handing over shares is also no problem for me (or the risk of us splitting up - ok I know that sounds stupid!). Ideally I would like to keep things as simple as possible.

What option do you think is best?

[northernladuk]

14) She starts up her own company and works through that.

This one for me. You have already mentioned the risk of splitting up which you never want to plan for but will hit you right between the eyes if you do.

Not the most tax efficient I will admit but nor is trying to get ex's out of your company. Something we have seen time and time again on here. Business and pleasure never mix in my book.