working with another freelancer

[malvolio]

thanks guys, .. as this is going to be regular thing for quite a large sum of money, will that be ok with the tax man?

Perhaps, perhaps not... Get professional advice if this is going to be a long term thing . For example, the following problems spring immediately to mind:

• If he fails to pay his tax from this income, you will be liable for it
• If you don't have an audit trail of where the money went, you can get wrapped up in CT enquiries and/or money laundering investigations
• Hector may take an interest and see this as you personally trying to evade paying tax on a portion of your income
• What does his contract of employment say about taking on other external commercial ventures? He can hold shares in someone else's company, natch, but other variations may well be prohibited.

So a separate company is a good move, since it provides the separation from YourCo and you can both take divis in proportion to your shareholding (and there are ways to align those to work done). But get the legals straight, it is not as simple as any sane person would want it to be!

[VectraMan]

VectraMan, sounds a bit scary what are the advantages?

You can keep this business entirely seperate from whatever else you're doing, so if it flops you're protected from the debts. You pay yourselves out of dividends only and so avoid issues of PAYE, and you can control when you pay the dividends as best fits your personal tax situation.

[pmeswani]

If you think it's a long term thing, why not create a new Ltd. company between you for this? You can split the share 60/40 or whatever. That's what I have for plan B co.

Or get him to set up a Ltd company (providing his contract of employment with his permie employer allows it) and get him to speak to an accountant to dot the i's and cross the t's. If you have 2 Ltd's under your name, your CT threshold will drop from £300k to £150k (if memory serves me correctly from reading another post somewhere else). I personally don't know what the benefits are for you to set up your own ltd company.