Reply to: IT Contractor Considering Bankruptcy

[SueEllen]

She is in the same field of expertise. And it is potentially possible (or even likely) that she may be considering contracting also in the future, and it would make sense for her to contract through the same company.

Then you need to get her to start contracting now through a company she has set up.

If she later employs you then it is not dodgy.If you go bankrupt and she then goes contracting it is.

Also as you are married it's very likely you have linked accounts though you don't realise it.

[GenericITContractor]

She is in the same field of expertise. And it is potentially possible (or even likely) that she may be considering contracting also in the future, and it would make sense for her to contract through the same company.

[SueEllen]

Hi,

I would be interested to know how I would be a shadow director? I would be an employee only of the company. With a wage taken out every month (from which the official receiver would work out any amounts to be taken I assume).
I wouldn't promote, or operate the company. My wife would do that herself.

You would be running the company behind the scenes as your wife would not know enough about the business area to run it unless she has skills and experience in the same area of expertise as you.

So if for example a couple who were both project managers did what you want to do, the official receiver and others would be suspicious but wouldn't challenge it as marriage is a partnership where one partner may use tax loop holes to the advantage of both of the parties.

However if your wife's previous role was an English teacher and you wanted to contract as a project manager then the official receiver would know you are a shadow director and may put a stop to it. This is simply because it is presumed your wife knows nothing about the business area.

Obviously there are grey areas e.g. tester and software developer where the roles are the same to an outsider, but if your jobs are clearly different then it wouldn't be allowed.

In addition lots of agencies now insist that you are an officer of the company otherwise they won't deal with you. In addition (as already pointed out) lots of sectors also don't hire bankrupts or anyone with money problems as a contractor.

[missinggreenfields]

One thing that was discussed recently (a thread by stek IIRC) is that if you croak, and leave your company directorless and without shareholders, things get awfy complicated.

Edit: Found it http://forums.contractoruk.com/accou...-contract.html

Some Articles of Association allow for easy appointment of a director in that situation - I know mine doesn't though, which is one reason why my wife is a director of the company. Although the instructions she has are pretty much "if anything happens to me, contact the accountant, contact the client, and contact the insurance people".

Oh, and don't look in that drawer - just burn the contents without even looking

[teapot418]

So I get why you pay your wife for having the role of Director, but why does she have the role in the first place?

One thing that was discussed recently (a thread by stek IIRC) is that if you croak, and leave your company directorless and without shareholders, things get awfy complicated.

Edit: Found it http://forums.contractoruk.com/accou...-contract.html

[rambaugh]

Hi,

Thanks for your responses so far.

The penalty was against a former company I was Technical Director of. The penalty was owing to essentially putting the wrong VAT number on purchases - the VAT was paid as part of another company (which has seen closed down), but the HMRC are chasing the company for the VAT on the original company, not the one on which it was paid. I then received a personal penalty of 50% of the amount.

This happened three years ago, prior to my contracting.

Not sure we're getting the whole story here.

A penalty of £277K was applied by HMRC to BLUE OCEAN ASSOCIATES LIMITED (See case BLUE OCEAN ASSOCIATES LTD vs HMRC). In that case the company was deemed to have filed it's VAT returns only one day late and incurred a default penalty surcharge of 2% for the amount outstanding (i.e. 2% x £13.86M).

It sounds like you either had a very large sum involved in the VAT return (similar sums to the case mentioned above) that you messed up or HMRC found several incorrect or late VAT filings and the penalty charges rolled up equate to a large sum. In any case, its pretty clear from both your case and the one mentioned above that HMRC are tough on late returns and payments so its vital that businesses don’t miss deadlines and double check filings made by their accountants.

[Old Greg]

Yes, that would be another reason. Though not for the usual reason, I've done very well for a long time and she'd have plenty of resources to take care of things until all the legalities could get sorted out.

But unlike most here, I have employees who have to be paid, so it would be irresponsible to not have a fallback if I die/become ill. Especially since I'm also older than most here, and she is a little younger than me and in better health.

In short, I have sound business reasons for having another director.

Thanks for the explanation. Responsibilities to employees makes sense to me at least.

[WordIsBond]

What bureaucracy is there that requires her to be a Company Director? Genuine question.

She signs off the accounts, etc. A Company Secretary could do that as well, but would also have liabilities that would call for compensation. I don't see a substantive difference between secretary and director for purposes of this discussion.

[WordIsBond]

Would access to the bank account if the worst happens valid enough...

Yes, that would be another reason. Though not for the usual reason, I've done very well for a long time and she'd have plenty of resources to take care of things until all the legalities could get sorted out.

But unlike most here, I have employees who have to be paid, so it would be irresponsible to not have a fallback if I die/become ill. Especially since I'm also older than most here, and she is a little younger than me and in better health.

In short, I have sound business reasons for having another director.

[eek]

Can't Company Secretary have access?

Company secretary has legal requirements which I wouldn't expect my wife to perform. You need to get the company return and accounts delivered

[Old Greg]

So I don't have to muck with the bureaucracy and can spend my time earning money and commenting on CUK.

What bureaucracy is there that requires her to be a Company Director? Genuine question.

[Old Greg]

Would access to the bank account if the worst happens valid enough...

Can't Company Secretary have access?

[WordIsBond]

So I get why you pay your wife for having the role of Director, but why does she have the role in the first place?

So I don't have to muck with the bureaucracy and can spend my time earning money and commenting on CUK.

[eek]

So I get why you pay your wife for having the role of Director, but why does she have the role in the first place?

Would access to the bank account if the worst happens valid enough...

[Old Greg]

This is unclear to me. Did HMRC actually receive all the money they were supposed to receive, and it was all just a paperwork mistake, or is there actually funds missing?

You're talking about two different companies here. Are both of them closed down?

***

Side note, totally off-topic to this case, but this is a great example of why directors should receive compensation simply for being a director. There is potentially significant liability attached to the position. So if you make your spouse a director or secretary of your company, there should be non-negligible compensation for that liability. That is why HMRC is unlikely to ever challenge director's compensation of £8-10K for a Ltd pulling in £100K or more a year. It's too easy to argue that liability concerns make that level of compensation consistent with market value.

It is exactly because of this kind of situation that I've turned down directorships in friends' companies and would certainly not accept one in anyone's company without real compensation. And it is why I have no hesitation in paying my wife for being a director. If we mess up, she's on the hook, too. She should be paid for that liability.

So I get why you pay your wife for having the role of Director, but why does she have the role in the first place?