Friend wants to contract through my company

[NotAllThere]

You should both set up as seperate ltd companies, then have him as a subby.

[Sausage Surprise]

Is there no adavantage for me to have a "professional relationship" set up with this new organisation he will be contracting for... I know in the past it is very hard for contracting companies to directly build a relationship with a client i.e. invoice directly and this is an opportunity where an agency does not need to be involved. We just don't want to miss out on the opportunity as likely to lead to a number of posts in the near future.

No....now back off and point him in the direction of an Umbrella. I did this for 6 weeks for a mate using my ltd as a brolly for him. NEVER AGAIN!!! The paperwork and PAYE was ridiculous and a right pain in the arse. It also spanned 2 yax years so add to that P60, P45, P11d, etc....

[Gentile]

Hello,

Need some advice. I had a lead for a potential contract and I sent it to a friend as he was searching for a new challenge. I didnt want to persue the opportunity as am satisfied with current contract arrangement. Anyways, cutting to the chase - friend has secured the contract for an initial 9 months (with likely renewals) and is overjoyed.

I have offered to help him get started in the world of contracting by using my limited company to invoice. Initially, the easiest way I have said the arrangement would work is by paying him his full salary by PAYE through the company. I don't want to make him a director / shareholder as am unaware of the hassle that would cause. Questions - is it worthwhile to let him keep business incurred receipts - if yes, what benefit is this to him? Can I offset this in my current accounts - reducing my corp tax bill.

Advice appreciated for anyone who is already doing this and helping someone out. Accountant has said it'll cost me very little to get him set up with wage slips, P60 etc

Thanks

I agree with the sentiment that friends and business don't mix wholeheartedly. It's like any other professional relationship (manager/employee, doctor/patient, lawyer/client), it simply doesn't work when you have a personal relationship with the other party. The main reason it doesn't work is that your Ltd company is not you, and it has legal and financial obligations of its own to take care of, however you feel about it.

That said, I have employed other people before, though only as a business proposition and not as a favour. My advice from that experience is that you can't afford just to pay contractor rates to people that are working through your company. So when you say you intend to "pay him his full salary by PAYE through the company", I advise you to be very careful about what you mean. It's easy enough to set up a PAYE run (just get your accountant to do it, typically for <£100 per month up to about 50 employees, or buy a simple accounts package like whatever the equivalent of Sage Line 50 is these days and run off the payslips yourself). Remember to deduct a sufficient amount from the money coming in for employers and employees PAYE contributions (about 30% of gross should cover it, IIRC), additional accountancy fees, your time in creating a contract of employment, your costs in managing an employee (e.g., processing any expenses they may incur), etc. All in all, for a single employee you need to retain about 40% of the money coming in for your overheads, or you wont even be breaking even once you add it all up. That's why you're getting advice that it'd be kinder to your friend, and co-incidentally yourself, just to advise him how to set up his own Ltd or let him go through a brolly (who can afford to pay him more than you, because of the economies of scale in managing a high number of PAYE employees).

[Nixon Williams]

I would add to the general view of not employing this person.

There are employment laws a etc that are a major concern and I would recommend that you do not get directly involved.

Alan

[Taita]

Is there no adavantage for me to have a "professional relationship" set up with this new organisation he will be contracting for... I know in the past it is very hard for contracting companies to directly build a relationship with a client i.e. invoice directly and this is an opportunity where an agency does not need to be involved. We just don't want to miss out on the opportunity as likely to lead to a number of posts in the near future.

Friends and business do not mix well. However, if you take all else said here on board about employee rights etc. and just treat him as an employee there just could be a business opportunity here (more postings with the client). You will also emphasise your ex IR35 credentials; business in your own right, risk etc. Do not forget you will be forking out Employer NI which you will need to recover in the umbrella manner. You should check your Employer Liability insurance and (possibly) get enhanced Professional Indemnity cover. All in all you will be doing him a service as an umbrella & agency so you should do it for profit. Good luck.

[northernladuk]

Friends and business do not mix well. However, if you take all else said here on board about employee rights etc. and just treat him as an employee there just could be a business opportunity here (more postings with the client). You will also emphasise your ex IR35 credentials; business in your own right, risk etc. Do not forget you will be forking out Employer NI which you will need to recover in the umbrella manner. You should check your Employer Liability insurance and (possibly) get enhanced Professional Indemnity cover. All in all you will be doing him a service as an umbrella & agency so you should do it for profit. Good luck.

Really? Just forget that they are friends? Great advice...not. You can't just ignore the one fact that makes this situation unworkable as pointed out by 2 pages of posters. <sigh>

[Taita]

Really? Just forget that they are friends? Great advice...not. You can't just ignore the one fact that makes this situation unworkable as pointed out by 2 pages of posters. <sigh>

So, if you want to expand your one-man-band into a consultancy you should only employ enemies?

If it is clearly established from the outset that it is an employer/employee relationship and not a partnership, I would be reluctant to ignore the business opportunity.