1 limited company with 2 fee-earning employees vs. 2 separate companies

[Kess]

I'm in IT and am considering moving into contracting (after 20 years as a permie!) and setting up a limited company etc. My wife is also in a career where she could go freelance but she is non-IT (she's a part-time teacher trainer).

Does anyone know if there are any tax or other advantages to both being fee-earning employees of the same limited company, even though we work in totally separate fields, or would it be best to create two separate companies?

TIA,
Kess

[simondolan]

I'm in IT and am considering moving into contracting (after 20 years as a permie!) and setting up a limited company etc. My wife is also in a career where she could go freelance but she is non-IT (she's a part-time teacher trainer).

Does anyone know if there are any tax or other advantages to both being fee-earning employees of the same limited company, even though we work in totally separate fields, or would it be best to create two separate companies?

TIA,
Kess

Running a Company with two fee earners in different occupations is generally not a good idea. You have the problems of differing income splits, IR35 complications, problems if you decide to go your seperate ways, insurance complications etc etc.

For the what it costs, maybe an extra £500 a year, I would recommend having two seperate Companies.

[The Lone Gunman]

Running a Company with two fee earners in different occupations is generally not a good idea. You have the problems of differing income splits, IR35 complications, problems if you decide to go your seperate ways, insurance complications etc etc.

For the what it costs, maybe an extra £500 a year, I would recommend having two seperate Companies.

Surely not? IR35s biggest pointer is being in business on your own account. 2 sources of income and employees are good pointers. Diversity is less business risk.

As they are husband and wife the income splits dont realy matter and as they are forming a company together then their married status defines "ownership" should a divorce take place.

There must be a way to do this with sensible wages (not based on earned fee proportions) and company set up.

I understand that you are an accountant and that you probably know best, but I can't believe it is that difficult.

[simondolan]

Surely not? IR35s biggest pointer is being in business on your own account. 2 sources of income and employees are good pointers. Diversity is less business risk.

As they are husband and wife the income splits dont realy matter and as they are forming a company together then their married status defines "ownership" should a divorce take place.

There must be a way to do this with sensible wages (not based on earned fee proportions) and company set up.

I understand that you are an accountant and that you probably know best, but I can't believe it is that difficult.

Don't get me wrong - can easily be done, it is just far less complicated to have the two structures, and provides for more flexibility.

The IR35 issue is a non starter - the Revenue would just look at each contract - the fact that a husband and wife are running two totally seperate sources of income through the same Co will have no impact on IR35 one way or the other. Being a contract teacher will almost certainly be caught by IR35, so you will have one source of income caught by IR35 and the other probably not.

[ASB]

Another risk of more than 1 fee earner is that this is likely to generate more profit. Thus it is possible that one will get to the main 30% rate of corporation tax quicker.

This needs >300k but could become a problem if they are both in well paid roles or expand.

[martinb]

Flat Rate VAT?

Presumably running as one company would make flat rate VAT difficult - how do you determine the appropriate rate to use if income is derived from 2 entirely different business activities?

[Pondlife]

Presumably running as one company would make flat rate VAT difficult - how do you determine the appropriate rate to use if income is derived from 2 entirely different business activities?

In addition to the fact that you're more likely to hit the threshold (approx 150K I think)

[Kess]

Thanks for the various replies.

It's interesting that the consensus is that 2 companies would probably be better. I had thought a single joint company might have tax advantages - it seems not.

Simon - you say that by being a contract trainer my wife will almost certainly be caught by IR35, whereas my IT job probably would not. This does surprise me - I must admit I'm still trying to get my head around IR35, but I thought IT contractors we're typically the most vulnerable while my wife, doing ad-hoc training sessions at multiple locations and different customers, would not. Can you clarify?

[simondolan]

Thanks for the various replies.

It's interesting that the consensus is that 2 companies would probably be better. I had thought a single joint company might have tax advantages - it seems not.

Simon - you say that by being a contract trainer my wife will almost certainly be caught by IR35, whereas my IT job probably would not. This does surprise me - I must admit I'm still trying to get my head around IR35, but I thought IT contractors we're typically the most vulnerable while my wife, doing ad-hoc training sessions at multiple locations and different customers, would not. Can you clarify?

Sorry - I misread that she was a part time teacher, not a teacher trainer. That does change things, and yes, if she is simply doing ad hoc training sessions here and there she would be unlikely to be caught, but as usual depends on circumstances.

Most contracts in the IT world tend to be IR35 "friendly", but get an professional opinion. Some agencies have been known to be slightly generous when describing their contracts as "friendly".......

These days it will come down to the actual working relationship as much as anything else, so provided the contract mirrors that relationship all well and good.

[oxtailsoup]

My wife and I are two fee earners using the same limited company. She is a freelance IT consultant but only does ad-hoc work for various clients she has known for years. We have found it much easier to run just the one company (we used to run two seperate companies when she was busier before she became a yummy mummy). Also means we have more of a reason to split the dividends in half even though this is a grey area with some accountants advising that the divi's should be paid in proportion of the fee's earned. We just split the divi's down the middle because as far as we are concerned we both put equal effort into running the business as my wife earns some fees and also does all our admin.