Reply to: Can I use my limited company to process other contractors who are not shareholders

[Jessica@WhiteFieldTax]

I've been in this situation and wonder if anyone has any more information.

Do you actually HAVE TO be an employee of the Ltd Company ? Isn't it possible just for the Ltd Co. to invoice the client, receive payment and then to pass the payment onto the individual concerned.

Assuming the pitfalls mentioned are complied with, i.e. Liability insurance is obtained, Self Assesment taxes are paid, NI is paid.

I've used this scenario a few times in the past without issue (a family members Ltd Co.) and hav'nt had any problems from agency, clients, etc..although recently a company did insist that I would need to be a director of said Ltd. Co. (which I'm not so I've gone down the Umbrella route).

Thanks

Andy

Employment status - basically IR35 pitched from a different direction.

If you pass the payment to the individual and they don't pass employment status tests then there is a PAYE/NI liability back to deemed employer, i.e. yourco.

Leaving aside the agency rules, this is why even in direct contracts clients prefer limited company contractors - it removes an element of their tax risk.

Obviously this is a simplistic overview of a complex area of law combining tax aw, employment law, contract law and government extortion.

[andydd]

I've been in this situation and wonder if anyone has any more information.

Do you actually HAVE TO be an employee of the Ltd Company ? Isn't it possible just for the Ltd Co. to invoice the client, receive payment and then to pass the payment onto the individual concerned.

Assuming the pitfalls mentioned are complied with, i.e. Liability insurance is obtained, Self Assesment taxes are paid, NI is paid.

I've used this scenario a few times in the past without issue (a family members Ltd Co.) and hav'nt had any problems from agency, clients, etc..although recently a company did insist that I would need to be a director of said Ltd. Co. (which I'm not so I've gone down the Umbrella route).

Thanks

Andy

[DShand]

As his employer you will be liable for employers NI, holiday pay and possibly sick pay. If the contract lasts for more then 12 weeks, then everything that goes along with the Agency Working Regulations such as 4 weeks of pay between assignments and equal employee benefits.... Sounds like a bad idea to me.

[Sausage Surprise]

Done it once.....never again!

[Wanderer]

Though if he doesn't yourco could end up liable for his taxes.

^^^ This.

It sounds to me like the worker is looking to pay a 5% bung to the company so they can get paid "cash in hand" and not declare the income or pay tax on it and that is going to end badly....

[DirtyDog]

Yes, but consider insurances, accounting, whether he will be an employee and/or director, in other words, a world of pain.

Plus the chance of increasing turnover to such an extent that you have to leave the VAT FRS.

[VectraMan]

If he invoices as an individual, and declares it on his tax return, then he's just an expense, isn't he?

Though if he doesn't yourco could end up liable for his taxes.

Point him at an umbrella company. This is what they do, and generally for less than 5%.

[kingcook]

^ so agencies should be on at least 5% then ?

You won't be an agent for your friend - you'll be his employer. Unless you were thinking about setting yourself up as a recruitment business and having agent style contracts?

[BigRed]

^ so agencies should be on at least 5% then ?

[SueEllen]

Do you have employer liability insurance? Public liability?

Those insurances don't actually cost very much. Employers liability is often bundled in with other insurance products and you may have public liability due to your clients.

What you going to do if he makes a big **** up while working? Your limited company could be liable.

Avoid.

This is the bigger problem.

If the guy touches live systems or works in certain industries then you don't want to go near him.

If he doesn't then you need to take a bigger cut to cover the potential risks.

[kingcook]

Yes, but consider insurances, accounting, whether he will be an employee and/or director, in other words, a world of pain.

Definately ^this^.

Do you have employer liability insurance? Public liability?

What you going to do if he makes a big **** up while working? Your limited company could be liable.

Avoid.

[mudskipper]

Yes, but consider insurances, accounting, whether he will be an employee and/or director, in other words, a world of pain.

If he invoices as an individual, and declares it on his tax return, then he's just an expense, isn't he?

[Ticktock]

Shirley you'd have to sign the contract, as director of your company, and then either put him as a temporary employee (with the attached complications), or set up a separate contract with him as self-employed?

I'm thinking of it more along the lines of how you would deal with a substitution (if anyone on here has managed one), as potentially you could deal with this through the same setup, or am I wrong?

[northernladuk]

Yes, but consider insurances, accounting, whether he will be an employee and/or director, in other words, a world of pain.

This and another couple of lines of items you have to consider. Avoid it like the plague.

[stek]

one of my friend requested to process his temporary contracts of 6 weeks through my company and take 5% cut and pay the remaining to him directly. is this legal ?

Yes, but consider insurances, accounting, whether he will be an employee and/or director, in other words, a world of pain.