Reply to: Contractors Banding Together in One Company

[iamintoit]

Thanks jessica

Nope - differing tax regime. Unless you have corporate partners in LLP...

OKIES

[Jessica@WhiteFieldTax]

In Dave Chaplin's Contractors Handbook - Second Edition, it says they can split income as dividends. Is this not correct?

Nope - differing tax regime. Unless you have corporate partners in LLP...

[BolshieBastard]

You won't when it comes to arguing about money and everyone sees themselves as an individual and want's the cut they see as fair.....

This.

I know someone who went into a similar 'co operative' or whatever anyone wants to call it.

Things got awkward and one person got marginalised very much financially.

Be careful out there!

[iamintoit]

Forgot to ADD

No, you can't take dividends from a LLP! LLPs are taxed the same as conventional partnerships, in turn a collection of sole traders, which means profit taxed in full and subject to Class 4 NI.

A LLP may be a possibility for a scenario like this, but it would be a higher tax charge per individual on each slice of income cf. a outside IR35 PSC.

LLPs do come in to their own for use as special purpose vehicles.

In Dave Chaplin's Contractors Handbook - Second Edition, it says they can split income as dividends. Is this not correct?

[iamintoit]

No, you can't take dividends from a LLP! LLPs are taxed the same as conventional partnerships, in turn a collection of sole traders, which means profit taxed in full and subject to Class 4 NI.

A LLP may be a possibility for a scenario like this, but it would be a higher tax charge per individual on each slice of income cf. a outside IR35 PSC.

LLPs do come in to their own for use as special purpose vehicles.

Thanks for sharing the info and updating me Jessica.

[Jessica@WhiteFieldTax]

No, you can't take dividends from a LLP! LLPs are taxed the same as conventional partnerships, in turn a collection of sole traders, which means profit taxed in full and subject to Class 4 NI.

A LLP may be a possibility for a scenario like this, but it would be a higher tax charge per individual on each slice of income cf. a outside IR35 PSC.

LLPs do come in to their own for use as special purpose vehicles.

[iamintoit]

MY ANSWER

Apologies if this is referenced elsewhere.

I work with 6 other individuals, some of us Ltd companies, some are straight PAYE, some are through an Umbrella but there is one single intermediary in this - Capita Resourcing. We all work in a team doing BI for government as contractors via an agency and all of our contracts end on March 31st 2013 but we expect renewals to be forthcoming. We have been warned that as public sector contractors we will be heavily scrutinised for having the correct 'taxation' in place and each of us have to declare ourselves on some kind of new register thingy!

Basically it sounds like we are sitting ducks for IR35 and we are all going to be proverbially bent over and you know the rest.

I am trying to think of a way around our problem. The way I see it is there is no expertise in the civil service which our team has - we do actually offer a unique service. We look after a live system for 20,000 active users, so not insignificant.

We all get on well, so is there a possibility of another kind of corporate entity that might work? What if we formed our own Ltd co or a holding co and went direct as a supplier to our relevant govt dept? Even if we could get the govt to buy into our suggestion of going direct without an agency (cost savings), forget the fact that they might not go for it, logically, legally etc is there a way of doing this banding together to avoid IR35? We would rent premises and our contract would be completely different as we are a 'supplier', not individuals????

Interesting question, first of all..

Maybe forming a LLP (Limited Liability Partnership) would be ideal in this scenario.

LLPs are intended for professionals who wanted to group their companies into large associations of partners. Firms still use this form of business so that they can share profits, but keep expenses and problems seperate.

The advantage of LLPs is that the partners can split all income between them as dividends. You can also do this in a limited company, but the recordkeeping obligations for LLPs are far less complex.

Not sure if this is ideal, refer an accountant please.

Cheers

[northernladuk]

We all get on well, so is there a possibility of another kind of corporate entity that might work? What if we formed our own Ltd co or a holding co and went direct as a supplier to our relevant govt dept? Even if we could get the govt to buy into our suggestion of going direct without an agency (cost savings), forget the fact that they might not go for it, logically, legally etc is there a way of doing this banding together to avoid IR35? We would rent premises and our contract would be completely different as we are a 'supplier', not individuals????

You won't when it comes to arguing about money and everyone sees themselves as an individual and want's the cut they see as fair.....

[Jessica@WhiteFieldTax]

Its certainly a possibility to think about. We've had a few clients go down this route, and it seems to have worked for them.

However, first point is don't think of it as "company sharing" (not saying you were, mind) - if you do, just retaining the independent-contractors-sharing-a-company view, its unlikely to be a happy experience.

Second pint is it needs a bespoke approach - there are two or three differing ways to make this work, with a weather eye on IR35, practicalities and commercial issues - but its not "off the shelf"

Finally, don't let the tail wag the dog - there has to be a commercial rationale not just IR35.

HTH

[jamesbrown]

If they are all doing much the same thing and are pretty much interchangeable in terms of what they can deliver to the client, then it is a good IBOYA pointer, provided the contract is with the consultancy company and they are all working for it.

The usual (nad usually fatal) problem with these things is apportioning work done and payments received, but in IR35 terms they are a good defence.

Perhaps if they had a proper business plan, were sourcing other clients, and the working practices really supported being IBOYA, but the starting point seems to be "how can I avoid IR35", based on what is written.

[Maslins]

The usual (nad usually fatal) problem with these things is apportioning work done and payments received, but in IR35 terms they are a good defence.

This. How are you going to split money between you?

If you're all on exactly the same day rate, and all are working on contracts at the same time, fine. What about when one of you gets a better paid role, whilst someone else can't get a role at all? Do you still split profits evenly? What about when one of you wants to keep their personal tax bill low by leaving funds in the company, whilst the other needs to take as much cash out as possible (for house deposit/whatever)?

At this stage people start to look down the alphabet shares route (ie Mr A has class A shares, Mrs B has class B shares) each entitled to their own dividends, but that leads you into a further world of mess.

[BlasterBates]

Nothing is perfect is it, but in view of the pressure in the public sector, worth a try I would say. Certainly quite a few "real business buttons" get pressed. An office becomes something that can quite easily be justified when there´s a few of you; there´s probably at least one of you who´s either between contracts sorting things out or who can "wangle" a day in the office working....just one example of the whole thing looks more like a business.

Of course if everyone starts to do it then they might insert some new conditions, but yes sounds a resonable idea to me.

In the end it´s best to think of contractors as "Gnus" on the Savanna, HMRC will always chase the easy targets first. So I think this huddle is not a bad "put off".

[malvolio]

Can't see how that's going to work. The whole point of IR35 is to cast aside an intermediary and look at the hypothetical contract between you and the client. If your working practices point to employment, then you're screwed. But have your contract and working practices reviewed, by all means.

If they are all doing much the same thing and are pretty much interchangeable in terms of what they can deliver to the client, then it is a good IBOYA pointer, provided the contract is with the consultancy company and they are all working for it.

The usual (nad usually fatal) problem with these things is apportioning work done and payments received, but in IR35 terms they are a good defence.

[jamesbrown]

Can't see how that's going to work. The whole point of IR35 is to cast aside an intermediary and look at the hypothetical contract between you and the client. If your working practices point to employment, then you're screwed. But have your contract and working practices reviewed, by all means.

[Wanderer]

legally etc is there a way of doing this banding together to avoid IR35? We would rent premises and our contract would be completely different as we are a 'supplier', not individuals????

You would have to check that this doesn't fall foul of the Managed Service Company rules.