Starting a LTD company with friends, worth it?

[Moggz]

So I've decided to take the plunge and finally become and IT contractor, 2 of my current work colleagues/friends are also doing the same and we have all been offered contracts.

I originally setup my company for myself however my friends would now also like to start their contracts through my LTD company so we can share the accountancy/insurance/setup expenses, and as we can all do the same job or take different contracts it may help keep us outside any IR35 investigations.

I've tried searching on here on whether there are any complications or drawbacks in doing this but it seems that other contractors either go solo or have their wives/partners as a 2nd director or employee.

Would there be any major downsides or implications in running a LTD company this way? The only one's I can think of are declaring dividends on what each of us earned (we're all on different daily rates) and the gross income puts us above the FRS VAT threshold.

I trust them not to do anything dodgy and I will of course have contracts in place in case they do.

Also are there any benefits I/we can take advantage of in this situation?

Thanks!
Craig

[Sally@InTouch]

So I've decided to take the plunge and finally become and IT contractor, 2 of my current work colleagues/friends are also doing the same and we have all been offered contracts.

I originally setup my company for myself however my friends would now also like to start their contracts through my LTD company so we can share the accountancy/insurance/setup expenses, and as we can all do the same job or take different contracts it may help keep us outside any IR35 investigations.

I've tried searching on here on whether there are any complications or drawbacks in doing this but it seems that other contractors either go solo or have their wives/partners as a 2nd director or employee.

Would there be any major downsides or implications in running a LTD company this way? The only one's I can think of are declaring dividends on what each of us earned (we're all on different daily rates) and the gross income puts us above the FRS VAT threshold.

I trust them not to do anything dodgy and I will of course have contracts in place in case they do.

Also are there any benefits I/we can take advantage of in this situation?

Thanks!
Craig

Hi Moggz

Firstly, Congratulations. Secondly, think very hard before entering into a company with friends, however much you all trust each other. Over my 18 years of experience in this industry, I have seen a sad outcome on numerous occasions.

If you do decide to proceed, it's possible to have different classes of shares to distribute dividends. This is not as simple as it sounds because contract rates vary as do expenses. Other than the VAT flat rate scheme exemption you have picked up on, you also need to consider the small business rate of corporation tax threshold of £300,000 per annum.

From an IR35 perspective, each contract is assessed individually, so where two maybe outside, one could be inside. There is no guarantee that just because there are more than one employee and contract that it would help with IR35. That would be interesting trying to calculate the deemed salary and pay through PAYE instead of dividends. It is also possible that your insurances may be a higher cost when covering three of you.

I'm afraid, I cannot find any positives in what you have suggested... sorry

[Diver]

So I've decided to take the plunge and finally become and IT contractor, 2 of my current work colleagues/friends are also doing the same and we have all been offered contracts.

I originally setup my company for myself however my friends would now also like to start their contracts through my LTD company so we can share the accountancy/insurance/setup expenses, and as we can all do the same job or take different contracts it may help keep us outside any IR35 investigations.

Craig

One sentence "There are No friends in Business"

Twice I've entered into partnerships wiith friends in Ltd's and both times I became disenchanted rather rapidly with my partners. It is a guaranteed way to lose a friend.

[northernladuk]

One sentence "There are No friends in Business"

Twice I've entered into partnerships wiith friends in Ltd's and both times I became disenchanted rather rapidly with my partners. It is a guaranteed way to lose a friend.

Don't mix business and pleasure. Period. You can be best of mates but when it goes wrong or someone wants more than his share of the cake the business and the friendship will go horribly wrong. Money can make an enemy out of the best of friends.

The costs you are looking to share are trivial compared to income so silly to risk fall outs over such tiny amounts.

[BlasterBates]

I think this may indeed be a good defence against IR35. I get the impression that HMRC will be targeting companies with a certain profile, and I think the company would not end up on the target list, which I suspect are one man bands. Sure if everyone did this they'd soon change that, but I think the unusual profile of the co. is enough to mean you're running faster than the other Gnu's.

In my opinion if you took a reasonable salary say over 20 grand this would also put them off the scent as well. Sure you still pay more NI but you still save a lot and probably get off the radar screen. I think the minimum salary is a real red rag.

Just a personal opinion mind; no-one knows how they will target co's for IR35.

[northernladuk]

I think this may indeed be a good defence against IR35. I get the impression that HMRC will be targeting companies with a certain profile, and I think the company would not end up on the target list, which I suspect are one man bands. Sure if everyone did this they'd soon change that, but I think the unusual profile of the co. is enough to mean you're running faster than the other Gnu's.

In my opinion if you took a reasonable salary say over 20 grand this would also put them off the scent as well. Sure you still pay more NI but you still save a lot and probably get off the radar screen. I think the minimum salary is a real red rag.

Just a personal opinion mind; no-one knows how they will target co's for IR35.

But I don't believe it will. It is a few people doing different things under one cover. They will still fail most of the business type questions, their contracts can still individually fail IR35 (and try sorting that mess out between you!). Just because there are more than one still doesn't mean they are a business.

[Contreras]

... my friends would now also like to start their contracts through my LTD company so we can share the accountancy/insurance/setup expenses

All of which would be increased in line with the extra work involved. In terms of administration there is so much that a one man band can ignore where a partnership cannot - the savings, if any, would be moot.

it may help keep us outside any IR35 investigations.

Unlikely, IMHO. Being a partnership won't itself be an IR35 defence if that's what you're thinking.

Would there be any major downsides or implications in running a LTD company this way?

Yes, lots.

I trust them not to do anything dodgy

This alone is good enough reason not to set up together!

Also are there any benefits I/we can take advantage of in this situation?

Perhaps if you needed to bid as a team for larger packages of work. But this can also be done as a consortium or by subbing to each other.

[TheFaQQer]

The only benefit that I can see is if you are looking to build a consultancy business and grow it, which takes work but can be rewarding.

If you aren't doing that, then I can't see any benefit of just getting together to save company registration fees.

[Greg@CapitalCity]

Also are there any benefits I/we can take advantage of in this situation?

Hi Moggz - Determining the most tax efficient way of running the company for you, might be different to your friends, which in turn might require different levels of salary and dividends to be paid out. And then if one of you decides to stop paying dividends are tax purposes (and retain the income) then this would lead to further complication if/when you come to close down the business. Your friends getting a share of your retained earnings by way of capital distribution would be less that ideal.

You would also need to factor in expense reimbursement, and decide how best to split the company tax savings made each time you claim expenses. One of you might have a lot of expenses, another might have very few - determining the share of corporation tax savings from each would be time consuming.

If all three of you are contractors, then get a company set-up for each. I can't see any positive angle for all sharing the same company. Good luck!

[krytonsheep]

Don't mix business and pleasure.

WHS.
If there's 3 of you, are you all going to have control over the company bank account? What if someone decides to help themselves to a 5k director loan? What happens if you all end up on the bench in 3 months time? Contracting is risky and stressful at times, trying to make things more complicated will just make it harder.