How many contractors does it need to be a business rather than a PSC?

[northernladuk]

I read the FLC thread on here from 2015 and it didn't actually say what the scheme was or provide any links to it. I guess it never took off.

Here is my idea: I'll just stop posting for awhile and not dilute a useful and highly topical thread with fanciful crap for awhile..

FTFY

[MrMarkyMark]

I read the FLC thread on here from 2015 and it didn't actually say what the scheme was or provide any links to it. I guess it never took off.

Here is my idea: Something similar to an umbrella company where contractors team together to form a consultancy/services firm. No individual is allowed to own more than 5% of the firm. The firm handles invoicing etc and everyone is paid a basic minimal salary. Each contractors daily rate determines his percentage of ownership so that dividends can be paid proportionally. IR35 cannot be applied to these individuals regardless of "end-client SDC" as they do not meet the criteria of s51 ITEPA 2003. The firm can rightly bill out to the end-client or agency and expect to receive the full amount without the "deemed employee" deductions. Operating under this structure can be sold to end-clients as an "IR35 free" solution where they are not required to determine SDC.

The advantages of this structure over a typical umbrella company are obvious; the full range of business expenses can be deducted before tax. This structure would be particularly useful for contractors who need to stay away from home.

Disadvantages are likely to be a larger administrative burden, dealing with contractors who want to leave the group as an immediate replacement would need to be found to transfer the share ownership; potential legal complications or disputes if a contractor refuses to give up ownership or dies (meaning his shares will pass to his estate). This would need to all be accounted for in the legal contract between the share owners of the firm. I guess there will be other challenges that need to be ironed out.

I expect to be abused for this idea but I'll put it out for discussion anyway.

Tell you what, why don't you just go for it, then let us know how you get on.

[RonBW]

Disadvantages are likely to be a larger administrative burden, dealing with contractors who want to leave the group as an immediate replacement would need to be found to transfer the share ownership; potential legal complications or disputes if a contractor refuses to give up ownership or dies (meaning his shares will pass to his estate). This would need to all be accounted for in the legal contract between the share owners of the firm. I guess there will be other challenges that need to be ironed out.

Share ownership based on daily rate is never going to work out.

Let's assume that you start out with 20 contractors who all bill at £500 a day. Everyone owns 20% because that's optimal. Contractor 1 leaves his contract at the end of it, so now has a zero billing rate. Under your proposal, he has to do something with his shares because he is no longer billing. The rest of the company aren't interested in buying him out. What happens to the shares? 10 of the remaining 19 change their mind but the others don't - can the 10 buy the shares and then own more than 5%? The other 9 change their mind so now 19 want to buy him out, but he changes his mind and now refuses to sell. No-one can force him to sell, and he now has 5% of the company and does nothing to bring money in.

Contractor 2 gets a new contract and now charges £1000 a day. At the same time, contractor 3 gets a new contract and charges £400 a day. How does anyone force one individual to buy shares in the company and the other one to sell? What happens if one contractor gets a two day contract doing specialist work for £2000 a day - when and how does that get figured into the business? Contractor 10 decides she wants to take a 6 week break and does so - what happens to her shares during that time?

It's a ridiculous idea, trying to work around IR35. IR35 has been around for 17 years. If your idea was remotely workable, everyone would have done it - so why don't you talk to a company that works in the way you describe and see what their problems to date have been?

[MrMarkyMark]

Share ownership based on daily rate is never going to work out.

Let's assume that you start out with 20 contractors who all bill at £500 a day. Everyone owns 20% because that's optimal. Contractor 1 leaves his contract at the end of it, so now has a zero billing rate. Under your proposal, he has to do something with his shares because he is no longer billing. The rest of the company aren't interested in buying him out. What happens to the shares? 10 of the remaining 19 change their mind but the others don't - can the 10 buy the shares and then own more than 5%? The other 9 change their mind so now 19 want to buy him out, but he changes his mind and now refuses to sell. No-one can force him to sell, and he now has 5% of the company and does nothing to bring money in.

Contractor 2 gets a new contract and now charges £1000 a day. At the same time, contractor 3 gets a new contract and charges £400 a day. How does anyone force one individual to buy shares in the company and the other one to sell? What happens if one contractor gets a two day contract doing specialist work for £2000 a day - when and how does that get figured into the business? Contractor 10 decides she wants to take a 6 week break and does so - what happens to her shares during that time?

It's a ridiculous idea, trying to work around IR35. IR35 has been around for 17 years. If your idea was remotely workable, everyone would have done it - so why don't you talk to a company that works in the way you describe and see what their problems to date have been?

Because he's having a few Stevie moments...

[RonBW]

I read the FLC thread on here from 2015 and it didn't actually say what the scheme was or provide any links to it. I guess it never took off.

I guess you didn't read too hard

2014 - Contracting is a policy priority, Labour told :: Contractor UK

2015 - IPSE revives Freelancer Limited Company plan :: Contractor UK

2015 document - https://www.ipse.co.uk/sites/default...%20Company.pdf

[northernladuk]

I guess you didn't read too hard

2014 - Contracting is a policy priority, Labour told :: Contractor UK

2015 - IPSE revives Freelancer Limited Company plan :: Contractor UK

2015 document - https://www.ipse.co.uk/sites/default...%20Company.pdf

It's his standard modus operandi. Get a little bit of knowledge, apply it badly without understanding and then re-gurgitate it on to the forum an option/fact but really it's just flailing about in the dark.

[MrMarkyMark]

It's his standard modus operandi. Get a little bit of knowledge, apply it badly without understanding and then re-gurgitate it on to the forum an option/fact but really it's just flailing about in the dark.

Then wonders why everyone is disagreeing, then starts suggesting they fellate the mods etc...

[northernladuk]

Then wonders why everyone is disagreeing, then starts suggesting they fellate the mods etc...

To be fair that's the best suggestion he's made and has more merits and is more likely to happen than anything else he's posted.

[MrMarkyMark]

To be fair that's the best suggestion he's made and has more merits and is more likely to happen than anything else he's posted.

You've decided to take one for the team then, or did you draw the short straw

[northernladuk]

You've decided to take one for the team then, or did you draw the short straw

F**k the team. I'm in it purely for my own benefit!!