Reply to: Husband and wife contracting through same Ltd Co. - good or bad idea?

[Wanderer]

What option do you think is best?

A husband and wife have a special status under law so it's easier to make a recommendation. If you are not married then it's slightly tricky because legally you are two financially independent people.

The question to ask is how close are you financially? Do you have a joint bank account? Do you own a property together? Would you go into partnership running a business together? Do you consider things to be "yours" and "hers" or do they belong to both of you?

If you do then all means go ahead and trade through the same company. You can just split the total profit of the company and take half each to avoid higher rate tax. You will also save a grand a year on accountant's fees and a fair amount of admin.

If you aren't quite that financially together then you should setup separate companies. Try and get their year ends aligned (you can change the year end) so you both do all the admin stuff at the same time.

[TheFaQQer]

Depends how big your house is.

I know more than one couple who both have a separate office from each other at home.

[SueEllen]

Dunno, wasn't bothered about going in to it but stuff like accountants and the like. Home office is 3 quid a day and claiming it twice would be a little suspect..

Depends how big your house is.

I know more than one couple who both have a separate office from each other at home.

[TheFaQQer]

1) She works through her own umbrella/agency completely separate to me on PAYE.

OK idea. Or (as someone else has said) pay her PAYE through your co.

2) I make her a director AND a shareholder of my company and pay her minimum wage and dividend relative to her shareholding.

Won't you have to sell her the shares? Or at least declare it as some kind of benefit.

3) I make her a shareholder only and “subcontract” work to her through my company (although she works as an Internal communications manager and I’m an IT project manager) so different business areas.

So, she would need to be declared as self-employed and you still pay her for the work done, plus dividends. Can't see the benefit, myself.

4) She starts up her own company and works through that.

That's what I'd do.

[northernladuk]

Aside from a few admin costs... how is running 1 company more tax efficient than running 2?
(Infact if you've got 2 companies than some costs might be declarable in both companies, e.g. use of home as office)

Dunno, wasn't bothered about going in to it but stuff like accountants and the like. Home office is 3 quid a day and claiming it twice would be a little suspect..

Anyway, was a glib comment to cover myself when someone jumped in to say 'Ah but you lose loads of cash if you do 2 LTD's'. Can't win either way LOL

[Spacecadet]

Not the most tax efficient I will admit but nor is trying to get ex's out of your company. Something we have seen time and time again on here. Business and pleasure never mix in my book.

Aside from a few admin costs... how is running 1 company more tax efficient than running 2?
(Infact if you've got 2 companies than some costs might be declarable in both companies, e.g. use of home as office)

[craig1]

There's a further option of you employing her via your company and PAYE system. If she's going through an umbrella now, you can at least save the admin fees that the umbrella charges. Not ideal but I suppose it saves a few £ a month!

If you're having doubts about the long-term future of the relationship, regardless of how small, do not give away a single share.

Be aware though that if you do go the director/shareholder route then you run quite into MSC territory if, for example, she has no access to the bank or accounts. You'd truly have to share everything to totally eliminate that threat. Are you ready to do that?

Personally, I'd go with NLUK and get a second ltd company.

[northernladuk]

14) She starts up her own company and works through that.

This one for me. You have already mentioned the risk of splitting up which you never want to plan for but will hit you right between the eyes if you do.

Not the most tax efficient I will admit but nor is trying to get ex's out of your company. Something we have seen time and time again on here. Business and pleasure never mix in my book.

[Guilefox77]

Same Boat

Sorry I am hijacking this thread but my situation is similar.

I’ve been contracting via my own limited company for nearly two years.

My partner (we are not married) has recently started a contract too (she is registered at another house (bills, electoral roll) so in every way legally there is no connection between us).

I think we have these options:

1) She works through her own umbrella/agency completely separate to me on PAYE.
2) I make her a director AND a shareholder of my company and pay her minimum wage and dividend relative to her shareholding.
3) I make her a shareholder only and “subcontract” work to her through my company (although she works as an Internal communications manager and I’m an IT project manager) so different business areas.
4) She starts up her own company and works through that.

We are both charging VAT on our invoices, and my company is VAT registered and I use flat rate scheme to make savings.

From what I've read so far opinion seems slightly divided. A 2nd company admin and year end accounts is no fun, handing over shares is also no problem for me (or the risk of us splitting up - ok I know that sounds stupid!). Ideally I would like to keep things as simple as possible.

What option do you think is best?

[Fred Bloggs]

1) I would say yes, appoint him as director because if either of you should become incapable of running the company, the other director could take over. It may also wipe out some of the red tape regarding employees rights (like maybe NMW) as most of them don't apply to directors. Get a proper accountant to advise on this though.

2) No, quite the opposite because it may be a good IR35 pointer since you would be a proper family business where you could potentially be both working on each other's contracts (exercising a right of substitution) which would give HMRC a real headache if they ever tried to pin IR35 on you.

Both working through the same Ltd Co is an excellent way of working IMO, however, it will have absolutely no bearing whatsoever on IR35 status. IR35 bolis down to mutuality of obligation, direction/control and subsititution rights and nothing at all to do with whether you are a one or two person business.

[Greg@CapitalCity]

Isn't the difficulty the lack of flexibility - if you take the majority of the money out through dividends, you are locked to taking the same relative amounts every time based on shareholding.

This seems to be a common theme. If MrsKay is going to gift shares to MrKay at some point down the track, why not also change the class of shares to enable flexibility in dividend payments between shareholders? So long as the shares hold the same rights, then the S660 argument is the same whatever way you look at it. To ensure the gift of shares is outright, avoid dividend waivers, and pay dividends into separate bank accounts for each shareholder.

[craig1]

Isn't the difficulty the lack of flexibility - if you take the majority of the money out through dividends, you are locked to taking the same relative amounts every time based on shareholding.

That's one of the secondary reasons I do my work through an LLP with my wife as the other fee-earning partner. We generally work on an "eat what you kill basis" once the annual profits get to the point we're into the 40% tax bracket. Our partnership agreement reflects that split and it has worked well for us over the years.

[d000hg]

Not sure how Taking Dividends will cause problems..... You take Divvis from the Company profit based on your shareholding (nothing to do with how the company earns profit).... You (should) declare this on your Tax SA...... just as if you had shares in IBM and they pay a Divvi
ie You own about 0.00001% of IBM so you only get a little bit - but the principal is the same.
You can own shares in as many companies as you like.

Isn't the difficulty the lack of flexibility - if you take the majority of the money out through dividends, you are locked to taking the same relative amounts every time based on shareholding.

[MrsKay]

Thank you.

Thank you, Clare, Craig, ASB and Wanderer for all your useful advice.

MrsKay

[Wanderer]

1) Should I make MrKay a director of the company? I am worried that as an employer, the Ltd Co is not paying MrKay a salary while he is now a full time employee.
2) Is it risky for husband and wife to contract through the same Ltd Co? as far as s660 is concerned?

1) I would say yes, appoint him as director because if either of you should become incapable of running the company, the other director could take over. It may also wipe out some of the red tape regarding employees rights (like maybe NMW) as most of them don't apply to directors. Get a proper accountant to advise on this though.

2) No, quite the opposite because it may be a good IR35 pointer since you would be a proper family business where you could potentially be both working on each other's contracts (exercising a right of substitution) which would give HMRC a real headache if they ever tried to pin IR35 on you.