Limited Company advice required - after bankruptcy

[craig1]

Thanks for all this advice, it's far batter to know now that make a mistake, and I have made few.
Could someone pleas explain if am umbrella company would be any different, would it be any real benefit?

Thanks

Lucy

If you're with an umbrella company, you're essentially an employee of the umbrella with straight in-out money transactions making it very easy for you to do your accounting with the OR.

The only thing I can see of benefit for you going contracting with a brolly is that you'll be earning more money (I assume you will anyway on contractor rates) and your bankruptcy debt will be paid down more quickly. You'll have no security of employment, no employee benefits and will be less well off with your hard £1200pcm OR limit than if you'd stayed as a permie. As a permie, if you're off sick, you still get paid, if you go on holiday, you still get paid, you still have all your other benefits including healthcare and pensions but as an umbrella contractor you meet every penny of that from your income.

Be aware though that you're very unlikely to get a contract role as an undischarged bankrupt, most agency contracts will have something in there about this. Apply for your discharge now, you don't have to wait the entire time as long as you're acting in good faith and you've made the payment agreement.

[lucylucy]

Many Thanks

Once again thanks for this advice, I think I need to stay as a permie for now. What a great site.

Lucy

[lucylucy]

Conflicting information

I have just received this conflicting information from another thread.

Lucy, the OR cannot "make a grab" for the company's income. If you are merely an employee (it doesn't matter that your expertise may be key to the business) it is up to you, not the OR, to negotiate your remuneration package with your employer. You are not a shareholder so you have no interest in the profits, thus the OR has no interest either.

The story might be different if the company was making £100ks a year but even then I have never known anybody challenge such an arrangement in my 30+ years of practice.

[northernladuk]

I have just received this conflicting information from another thread.

Lucy, the OR cannot "make a grab" for the company's income. If you are merely an employee (it doesn't matter that your expertise may be key to the business) it is up to you, not the OR, to negotiate your remuneration package with your employer. You are not a shareholder so you have no interest in the profits, thus the OR has no interest either.

The story might be different if the company was making £100ks a year but even then I have never known anybody challenge such an arrangement in my 30+ years of practice.

But the whole idea of running a LTD is to benefit from the tax breaks offered by giving yourself dividends instead of pay. The above states you are just an employee and not a share holder so will not offer much benefit. You can set your own wage and leave the rest in the company I guess but the temptation would be then to start paying your huband or letting him withdraw the cash via divi's which is getting very close to tax avoidance. The rest of the money will have to stay in the company and get withdrawn at some point. If you are planning on keeping as much in the company to give yourself later when your situation has been cleared but that looks like you are avoiding your responsibilities again which I am sure someone will take a dim view of. You have to be very careful here. Everything I see you trying to do is to avoid paying what is due.

[craig1]

I have just received this conflicting information from another thread.

Lucy, the OR cannot "make a grab" for the company's income. If you are merely an employee (it doesn't matter that your expertise may be key to the business) it is up to you, not the OR, to negotiate your remuneration package with your employer. You are not a shareholder so you have no interest in the profits, thus the OR has no interest either.

The story might be different if the company was making £100ks a year but even then I have never known anybody challenge such an arrangement in my 30+ years of practice.

If your company were truly a company in business on its own behalf with you as a proper employee with no director's responsibilities then I'd agree entirely but it's not, it's you as the sole fee-earner with effective sole control over the income of the company. See the links posted on the page before about disqualified directors, you'd fit 100% within the shadow director guidelines and would be committing a criminal offence, no ifs or buts, you're caught.

As contractors have been discovering over the last decade or two through things like IR35, it's your intentions and actual practices that count, not the narrow legality of working through a limited company and hiding behind limited liability.

You seem to be not taking the earlier advice seriously. Can I strongly suggest that you get proper professional advice from an insolvency practitioner or even the Official Receiver before you run the risk of criminal actions? Never, ever trust the advice you receive from a stranger on a forum that has the risk of seeing you break the law just because they assert they're a qualified professional. You shouldn't even really trust my advice but at least mine is low risk!

Take a hypothetical example from your company. If you "negotiated" that you'd take minimum wage as an employee, the company director would take no salary or dividends and that the taxed profits would remain in the company until after your OR's agreement expired when you could take it all free from interference from the OR, do you HONESTLY expect that the OR would sit back and do nothing? You'd be back in court very quickly and find yourself on the hard end of the powers of the court and OR.

That all said, it's your choice. If you choose to go ahead with a high-risk strategy then that's entirely your choice, just make sure that you blame yourself squarely if it comes back to bite you.

[Zoiderman]

It depends how you look on this.

Here's my take. You may not be able to be a Director, but you can be a shareholder.

I would get your partner to set up the Limited company, adding you as a shareholder, but not as an officer in the company. I would draw a 'reasonable' salary, and neither of you draw dividends. Your partner I would 'employ' to do accounts, and other back office duties, and make sure he has a reasonable salary. I would do this, keeping money in your Company, until the order is over. As long as you are not receiving a benefit from your shareholding, you will be ok. The company will not be yours, you just have shares which are not returning dividends, so have no income. However, I would ensure that you have a contract, and pay yourself the baseline you can afford.

I also do not see anything wrong with this, this is a forum for advice on contracting, accountancy, etc, not morality.

[Zoiderman]

By the way, once the OR has cleared you, he cannot call you back. All I would advise, was that you paid a proper wage to yourself and partner, for work they did.

As far as I know, you don't have to be the one doing the work the business is intended for, if you're the director. I know a man who bought a taxi and employed someone to drive it. He did nothing.

But as someone else has said, get professional advice, and look into this fully as depending on how you did this, you could be opening up a whole new can of whoop ass

[Clare@InTouch]

It depends how you look on this.

Here's my take. You may not be able to be a Director, but you can be a shareholder.

I would get your partner to set up the Limited company, adding you as a shareholder, but not as an officer in the company. I would draw a 'reasonable' salary, and neither of you draw dividends. Your partner I would 'employ' to do accounts, and other back office duties, and make sure he has a reasonable salary. I would do this, keeping money in your Company, until the order is over. As long as you are not receiving a benefit from your shareholding, you will be ok. The company will not be yours, you just have shares which are not returning dividends, so have no income. However, I would ensure that you have a contract, and pay yourself the baseline you can afford.

I also do not see anything wrong with this, this is a forum for advice on contracting, accountancy, etc, not morality.

I don't think it's a question of morality, it's about the danger of acting as a shadow director and therefore breaking the law.

So what constitutes a shadow director? Generally, it is a person in accordance with whose instructions or directions the directors of a company are accustomed to act. Further guidance has evolved from case law as follows:-

It requires more than the minority of the directors to follow the shadow directors instructions
The other directors must follow these instructions for a period of time as their regular practice
Instructions do not need to cover every aspect, or even most aspects, of the company’s activities, nor do they need to be overt instructions
Acting in secrecy is not a necessary factor to constitute a shadow director

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[craig1]

I also do not see anything wrong with this, this is a forum for advice on contracting, accountancy, etc, not morality.

It's not about morality, it's legal facts and liabilities

It's almost impossible to avoid allegations of being a shadow director if you're the sole fee-earner in a company, did the contract negotiations, etc. For example, if you negotiated with an agency about a role, rates, availability, etc. and this was for the greatest bulk of your company's income for that period then you'd be almost text-book caught as a shadow director.

Also, once caught, every penny in the company is fair game, especially if you're withholding profits from distribution in order to avoid the OR's agreement.

[northernladuk]

I also do not see anything wrong with this, this is a forum for advice on contracting, accountancy, etc, not morality.

Where you do draw the line between morality and breaking the law or giving advice to people that will drop them in trouble in the future though?

I certainly do not think a professional forum should be the place to get advice on how to break the law or hide from legal, professional and personal obligations.

It is also a public forum with random people giving opinions. You take it all based on how much it costs you, which is nothing. If someone wants to voice their opinions on another posters morality towards running their business I think they are quite right to do so. Some of us are a bit fly by night, others pure as the driven snow. This mix is what makes the feedback interesting and useful IMO.