Reply to: Form own LTD or use Wife's?

[pmeswani]

Hi folks, just to let you know that the company accountant has advised that he can see no sound argument against me becoming a director/shareholder in my wife's company.

There are no overriding TAX implications because I am a working director making money for the business (the larger share of the income will come from me) and not joining to just take a salary for some ad-hoc work or whatever.

We can continue to use the Flat Rate Vat scheme as the threshold is £150, and we are below that level of VAT taxable company turnover.

Sorry if I have not covered off all the points raised but thanks for your interest and assistance and I will continue to monitor this thread in case there are any further points raised.

I note the new comments re. IR35, but that is not another fine kettle of fish I wish to get into right now. I'll just make sure the contract is professionally IR35 checked and get on with it. I'm a Director of a business for goodness sakes! Where's my cigar!

Good Luck. I still think it's risky ground, even if there is no Tax issue. Just hope that your wife doesn't do a runner with all the money and leave you to sort out the debts. Make sure you have access to the Bank Account and Statements. Just remember, just because on paper the decision is joint, it only takes one person to do something without agreement to drop someone in deep poo.

[techadept]

Hi folks, just to let you know that the company accountant has advised that he can see no sound argument against me becoming a director/shareholder in my wife's company.

There are no overriding TAX implications because I am a working director making money for the business (the larger share of the income will come from me) and not joining to just take a salary for some ad-hoc work or whatever.

We can continue to use the Flat Rate Vat scheme as the threshold is £150, and we are below that level of VAT taxable company turnover.

Sorry if I have not covered off all the points raised but thanks for your interest and assistance and I will continue to monitor this thread in case there are any further points raised.

I note the new comments re. IR35, but that is not another fine kettle of fish I wish to get into right now. I'll just make sure the contract is professionally IR35 checked and get on with it. I'm a Director of a business for goodness sakes! Where's my cigar!

[Platypus]

Quick one regarding IR35 and working through someone elses company. What if you join your wifes company as an employee and she only pay you a salary of say £15K and the contract you work on would be classified as inside of IR35. Would she be able to take all money on top of the £15K as a dividend? Surely, she can't be forced to give it to you as a salary as you are her employee?

I think that's a good point.

[dynamicsaxcontractor]

No - because IR35 is based on the contract and the working conditions - although it could give more weight to the substitution argument as you have another employee within the company.

Quick one regarding IR35 and working through someone elses company. What if you join your wifes company as an employee and she only pay you a salary of say £15K and the contract you work on would be classified as inside of IR35. Would she be able to take all money on top of the £15K as a dividend? Surely, she can't be forced to give it to you as a salary as you are her employee?

[Clare@InTouch]

So, us contractors are 'real companies' and yet if two of us are partners and share everything, and work in the same field, we should be two separate companies? Sounds like a company with 2 directors is more of a real company to me... charging out from its pool of resources to clients.

If you're not working in a 1-man-company, does IR35 go away?

No - because IR35 is based on the contract and the working conditions - although it could give more weight to the substitution argument as you have another employee within the company.

[d000hg]

So, us contractors are 'real companies' and yet if two of us are partners and share everything, and work in the same field, we should be two separate companies? Sounds like a company with 2 directors is more of a real company to me... charging out from its pool of resources to clients.

If you're not working in a 1-man-company, does IR35 go away?

[techadept]

More to think about.

Thanks everyone

I will raise these points with my accountant as I have an appointment this afternoon.

[Fred Bloggs]

Good point about flat rate VAT.

[lje]

Thank you, but I have to say you've lost me there pmeswani (ps. no offence but your avatar is very distracting)

Is your differing opinion here arising because I talked about being an employee of my wife's LTD as opposed to being director or partner?

Wanderer mentioned the advantages of a 'jointly owned company' so I guess that means a joint directorship would be advisable.

again, sorry for not being too up to speed on this

The consensus seems to be that there are more advantages than disadvantages in having two or more contractors, as directors, of a single LTD company, provided we are talking about a basic IT service being offered, with little chance of the company being split or sold in the future, and absolute trust and longevity being in-place.

IR35 is a separate issue and any investigation is not likely to be swayed by this

right?

If you decide to operate from the same company then the important thing is that you become a shareholder. You can be a director too if you like. As a shareholder you will be entitled to get dividends (which are not subject to employer or employee NI as it is not earned income). That means that you can get a low salary and higher dividends and reduce your tax burden (assuming you are outside of IR35).

Personally if my husband were to choose to go contracting again we would share the company. I do my own accounts and it would be easier to not have the extra admin of another company. We have done this in the past. However, it would mean that I would have to come off of the flat rate VAT scheme as the company's turnover would be too high. With the flat rate scheme I can make a nice bit of money. Far more than I would pay for an accountant if I used one. So for some people that would outweigh the extra admin of having 2 companies.

[Wanderer]

Wanderer mentioned the advantages of a 'jointly owned company' so I guess that means a joint directorship would be advisable.

Yes, that's right. If your wife owned (say) 1 share in her LTD company then she can gift you 1 share and appoint you as a director. Dividends are paid based on how many shares are held by each shareholder. So if the company declares a dividend of 10,000 from profits then the company can pay it out equally to the shareholders.

This also has the advantage that you are both directors of the company, so should something happen to either of you (heaven forbid) the remaining director can continue to run the company. If you have two companies with a single director then it's going to be different...

If you want to join as a director of your wife's company then there may be tax implications to this from my understanding (IANAA) as you would need to be given shares in the company and they have a value. If turnover is low now but profits rise in the future you can be whacked for more than the value of said shares when you took them. You can't just be gifted these shares and then split dividends accordingly, it is a bit more complex than this.

I'm not an accountant either. techadept, we've probably gone far enough and you should ask your accountant what is the best thing to do.

Specifically, you need ask if there are tax implications if your wife gifts you shares in her company and appoints you a director so you are equal shareholders OR if it would be better to close your wife's company and form a new one with you and your wife as joint directors and shareholders from the outset (though that's probably a load of hassle you don't want).

I think the rules about gifting shares to a spouse only apply if the spouse didn't earn any income for the company and the gift of shares brought the rights to receive dividend income for doing nothing. Your case is different as you would both be earning fees for the company so the normal hoopla about "income splitting" doesn't apply to you. Consider it as a "family business" where you both earn money and share the profits as dividends.

[THEPUMA]

Sorry just skim read this so not sure if this has been stated before but...

If you want to join as a director of your wife's company then there may be tax implications to this from my understanding (IANAA) as you would need to be given shares in the company and they have a value. If turnover is low now but profits rise in the future you can be whacked for more than the value of said shares when you took them. You can't just be gifted these shares and then split dividends accordingly, it is a bit more complex than this.

I don't think this should be an issue if dealt with correctly.

[administrator]

Sorry just skim read this so not sure if this has been stated before but...

If you want to join as a director of your wife's company then there may be tax implications to this from my understanding (IANAA) as you would need to be given shares in the company and they have a value. If turnover is low now but profits rise in the future you can be whacked for more than the value of said shares when you took them. You can't just be gifted these shares and then split dividends accordingly, it is a bit more complex than this.

For sake of simplicity and problems cropping up further down the line, form your own. The higher accountancy / management costs far outweigh the headaches that may crop up from piggy-backing on to your wife's company.

[pmeswani]

Thank you, but I have to say you've lost me there pmeswani (ps. no offence but your avatar is very distracting)

Is your differing opinion here arising because I talked about being an employee of my wife's LTD as opposed to being director or partner?

Wanderer mentioned the advantages of a 'jointly owned company' so I guess that means a joint directorship would be advisable.

again, sorry for not being too up to speed on this

The consensus seems to be that there are more advantages than disadvantages in having two or more contractors, as directors, of a single LTD company, provided we are talking about a basic IT service being offered, with little chance of the company being split or sold in the future, and absolute trust and longevity being in-place.

IR35 is a separate issue and any investigation is not likely to be swayed by this

right?

Ok, I must have missed the bit about the joint directorship. I personally would avoid it as it would mean that you would have to split dividends with your wife depending on the share of ownership of the business. If your wife decides to run off with some high profile superstar (for example), she could still take her share of your income into the business and you may not be able to do much about it. And when things go wrong, she could resign as a director and leave you with all the bills and liability to resolve. Just remember, Pete Tong is a reason why you shouldn't go into business with your partner.... unless you have absolute guarantee that things won't go wrong.

Start up your own company and keep it simple.

PS I love my avatar.... ;-)

[techadept]

Thank you, but I have to say you've lost me there pmeswani (ps. no offence but your avatar is very distracting)

Is your differing opinion here arising because I talked about being an employee of my wife's LTD as opposed to being director or partner?

Wanderer mentioned the advantages of a 'jointly owned company' so I guess that means a joint directorship would be advisable.

again, sorry for not being too up to speed on this

The consensus seems to be that there are more advantages than disadvantages in having two or more contractors, as directors, of a single LTD company, provided we are talking about a basic IT service being offered, with little chance of the company being split or sold in the future, and absolute trust and longevity being in-place.

IR35 is a separate issue and any investigation is not likely to be swayed by this

right?

[pmeswani]

@pmeswani, thanks for your response, and I note that you say that If I become an employee of my wife's company, this method of employment / working is not tax efficient!

This is exactly the crux of my question and it would be great if you could explain why this is the case?

I take it you would suggest that we each have our own LTD companies, and there are no benefits in operating any other way?

Thanks

If you become an employee of the wife's business, you your wife will have to pay Employee and Employer tax and NI, which could lead to about 50%. If you are a higher rate tax payer, then you could be looking at more. Guess where the money to pay the tax will come from?

If you have your own Ltd Company, you will be paying about 20% Corp Tax, and if you are on Flat Rate Scheme, you will benefit from a few extra pounds a month.

However, the amount of tax one has to pay will be dependant on IR35, etc.