Reply to: One Ltd Co with 3 Directors all on different contracts??

[northend]

New on here - hello all

So confusing, but thanks to all the previous posters...

I am in the process of looking at similar solutions. My company was started 10 years ago and over the past 5 or 6 years I have been mainly doing consultancy work, rather than contracting. The company has several clients and fulfills other requirements that I believe make me fall outside IR35 (although that's not the issue here).

However over the past year or so I have started working with two guys who essentially work for me as associates (they have their own companies and invoice me for their time). This is because I am now generating more business than I can comfortably handle. These two don't concern me as we get the work they help me out or do a piece of work directly and they invoice their services as a supplier.

However, my wife is now going to start working for me - previously she has helped out in the background as she has similar skills to me, but now she can be employed. The idea was that she would take a salary and dividends, but I would create two classes of shares so that she could take a dividend based on her revenue generation (much less than mine) and I could take a dividend based on my earnings. This is not a tax avoidance scheme, but simply my desire to make sure that everything is above board! I take a reasonable salary and some years no dividends have been declared when earnings have been lower than "normal".

Does all this hoo-haa mean that I shouldn't be doing this now? Or should I just keep the shares the same and declare the dividend that way? All I want to do is build a consultancy that maybe one day could employ several people is it too much to ask?

Oh, such confusion - why is it so hard to actually do the right thing, when there are rogue business people out there fleecing the system with apparent immunity?!?

[Alan @ BroomeAffinity]

I have clients in a similar predicament. Here's what I would suggest:

each of you should form a limited company - keeps you under VFRS threshold so you can save 4-5% on your contract. You also therefore maintain control of your own income / profits and there are no disputes as to who has earned more etc etc. If you are looking to share the profits on the basis of what you each have individually earned then yuo would have to vary the shares so that director A has for the sake of argument, A shares, director B, B shares etc each with different rights. That's a composite company - no ifs, buts, or maybes.

If you want to be in business together then form a separate company or LLP for your combined activities - you can then trade through it and pay each of you a bonus based on merit. Presumably your individual contracting activities will push you into 40% tax anayway so how this is paid is largely irrelevant. Using an LLP gives you even more flexibility as to how you pay yourself.

Off topic a bit: Do you really want to be in business with your friends. Often, the friendship suffers.

[VectraMan]

Whilst I do trust (to a point) my friends (and I'm sure they would think the same) none of us would have sole control over the account, we would all be joint signatory on it. The accountant would get to see the bank statements but would not have control over the account, she would just advise us what is available as a dividend for each of us to take.

What if you fall out, or there's some dispute? It could all get somewhat messy, which wouldn't happen if you just went for individual limited companies. There seems to be no real advantage to this, and lots of disadvantages.

If you're genuinely in business together, i.e. if one person isn't working he still gets a third of the income because you all support each other, that's different.

[where did my id go?]

Agree.

This looks like an artificial scheme where the prime reason for the setup has nothing to do with the business and everything to do with not paying tax. Asking for trouble.

[Fred Bloggs]

I reckon with all directors getting different classes of share and being paid divs proportional to the income they individually bring in then this would not be considered a consultancy business in its own right but a vehicle set up to avoid tax. This, in itself, may not be a problem, but I think it is sailing very close to the MSC wind. Who will have responsibility for the company bank account? Would any of the three directors trust the others with this? Would the accountant be able to access it?

That's my take too. If it quacks etc......

[JudoStu]

I reckon with all directors getting different classes of share and being paid divs proportional to the income they individually bring in then this would not be considered a consultancy business in its own right but a vehicle set up to avoid tax. This, in itself, may not be a problem, but I think it is sailing very close to the MSC wind. Who will have responsibility for the company bank account? Would any of the three directors trust the others with this? Would the accountant be able to access it?

Whilst I do trust (to a point) my friends (and I'm sure they would think the same) none of us would have sole control over the account, we would all be joint signatory on it. The accountant would get to see the bank statements but would not have control over the account, she would just advise us what is available as a dividend for each of us to take.

[Hex]

I reckon with all directors getting different classes of share and being paid divs proportional to the income they individually bring in then this would not be considered a consultancy business in its own right but a vehicle set up to avoid tax. This, in itself, may not be a problem, but I think it is sailing very close to the MSC wind. Who will have responsibility for the company bank account? Would any of the three directors trust the others with this? Would the accountant be able to access it?

[JudoStu]

I don't totally disagree, I suppose the key would be to show that the consultancy employed people and had a real office where people worke and answered phones, worked on fixed price quotations etc... I get the impression (but could well be wrong) that the OP is looking for a "guaranteed way round IR35" etc.. issues rather than start up a pukka multi-consultancy business? Apologies if I'm wrong on that.

We are indeed looking to start this business as a way of doing consultancy full-time rather than contracting, however there will inevitably be a period of generating business (say 12-24 months). This is why I was interested in peoples thoughts on the IR35 side of things with operating a company like this whilst we are still all contracting.

[Fred Bloggs]

Surely (to my eyes) it would be the starting of a small consultancy firm, rather than an accountancy one?

I don't totally disagree, I suppose the key would be to show that the consultancy employed people and had a real office where people worke and answered phones, worked on fixed price quotations etc... I get the impression (but could well be wrong) that the OP is looking for a "guaranteed way round IR35" etc.. issues rather than start up a pukka multi-consultancy business? Apologies if I'm wrong on that.

[NickNick]

Regarding MSC legislation, my thoughts are - "If walks, quacks and looks like a Duck....." then it is in fact a Duck.

I see no substantive difference between this proposal and the offerings that were outlawed by the likes of Brookson, Filetravel, Paycheck etc.... What would the difference be between thois arrangement and the previously doomed "composite company"?

Surely (to my eyes) it would be the starting of a small consultancy firm, rather than an accountancy one?

[Fred Bloggs]

Regarding MSC legislation, my thoughts are - "If walks, quacks and looks like a Duck....." then it is in fact a Duck.

I see no substantive difference between this proposal and the offerings that were outlawed by the likes of Brookson, Filetravel, Paycheck etc.... What would the difference be between thois arrangement and the previously doomed "composite company"?

[Hex]

I thought that was 1.5million?

Up to 300,000 is 20%,
300,001 to 1,500,000 is between 20% and 30%,
Over 1,500,000 is 30%

For this tax year ending 31/03/2008

[Sockpuppet]

Wont this also push you out of the small company band for CT tax calcs?

I thought that was 1.5million?

[Sockpuppet]

If you all have a similar skill set then you may be able to substitute each other. This will guarantee you remain outside IR35 (for that contract).

No, no it won't. It will help towards that, it won't guarantee it.

[Pickle2]

Wont this also push you out of the small company band for CT tax calcs?