LTD company with foreign resident as shareholder & employee
Discussion
First, the title would not fit I am not that illiterate.
A colleague and I are in the process of preparing a business case for our current employer, we would leave the business and become the sole provider of a niche service that we believe we can deliver at a lower total cost with additional benefits that the current way of working.
My business partner and I wish to establish a UK Ltd company of which we both will own 50%.
The problem is he wishes to stay living in Germany so a German resident, therefore he will be required to pay local German income tax and a brief scanning of google / financial "stuff" shows that his Social security contributions etc must also be paid in Germany.
Has anyone any experience of this and good point me in the direction of an experienced Tax Accountant?
We want to try and be as fair as possible and split the income 50/50, my first thought was too set-up three companies,
One "Mother" company the Customer pays followed by two "Daughter" companies, one in the UK (for me) and one in Germany (for him).
This way we can equally split the income at Mother level 50/50 and respective local taxes become our own "problem".
(Both of ours first venture into self-employed) absolutely any guidance / help is appreciated.
ETA; poor grammar
A colleague and I are in the process of preparing a business case for our current employer, we would leave the business and become the sole provider of a niche service that we believe we can deliver at a lower total cost with additional benefits that the current way of working.
My business partner and I wish to establish a UK Ltd company of which we both will own 50%.
The problem is he wishes to stay living in Germany so a German resident, therefore he will be required to pay local German income tax and a brief scanning of google / financial "stuff" shows that his Social security contributions etc must also be paid in Germany.
Has anyone any experience of this and good point me in the direction of an experienced Tax Accountant?
We want to try and be as fair as possible and split the income 50/50, my first thought was too set-up three companies,
One "Mother" company the Customer pays followed by two "Daughter" companies, one in the UK (for me) and one in Germany (for him).
This way we can equally split the income at Mother level 50/50 and respective local taxes become our own "problem".
(Both of ours first venture into self-employed) absolutely any guidance / help is appreciated.
ETA; poor grammar
Edited by Trexthedinosaur on Monday 16th January 17:44
This has problems written all over it.
Will the German resident partner be paid in Euros? If so how do you plan to account for exchange rate movements between GBP and Euros?
Having one company is a big enough headache (annual accounts, corporation tax, VAT, PAYE registration) you really don't want more then one if you can avoid it.
Do you have to go Limited?
The most important aspect is to have an agreement in place as to what the buyout would be should one partner wants out or for whatever reason is unable to continue contributing. The partner leaving invariably expects way more than the actual value of the business in my experience and if you can get this sorted from the outset it'll make life much less stressful later on.
Sorry to pose more problems than solutions but you really need to go into this eyes wide open and perceived unfairness can take hold very quickly.
Will the German resident partner be paid in Euros? If so how do you plan to account for exchange rate movements between GBP and Euros?
Having one company is a big enough headache (annual accounts, corporation tax, VAT, PAYE registration) you really don't want more then one if you can avoid it.
Do you have to go Limited?
The most important aspect is to have an agreement in place as to what the buyout would be should one partner wants out or for whatever reason is unable to continue contributing. The partner leaving invariably expects way more than the actual value of the business in my experience and if you can get this sorted from the outset it'll make life much less stressful later on.
Sorry to pose more problems than solutions but you really need to go into this eyes wide open and perceived unfairness can take hold very quickly.
I appreciate its difficult, that's why I have posted here for some help or link to an expert, PwC is my choice as they currently manage my U.K. + German tax affairs, but they can be a bit faceless / difficult to deal with.
Not ran my own company as I am currently PAYE and file my Self Assessment tax return, my father runs his own business so taking some advice / guidance from him too.
Currency fluctuation would be accounted for at source, in that we have a fixed exchange rate with our customer that lasts 12 months (this is the current situation within our S.C.), this should stablise the incoming funds.
Outgoing will be 'live' on 'payday', yes it may fluctuate but in order for the business to be viable it needs to be this way.
Split terms will be laid out, clearly, not crossed this bridge yet as we do not have the green light.
We are not planning to start for 12 months at the earliest, but I thought it would be best to raise the question to people in the know so we can compile a list of problems that we need to overcome.
Second comment;
No, we would (potentially) leave our current employer, not sure what you mean? Therefore we are preparing a case to present to them as a proposal to sub contract this service, only they see it as a non-core activity.
ETA; yes we have to go limited, there is potential for us to provide industrial assessments and advice to 'go / no-go' on hugely complex and expensive industrial contracts, cannot risk that.
Not ran my own company as I am currently PAYE and file my Self Assessment tax return, my father runs his own business so taking some advice / guidance from him too.
Currency fluctuation would be accounted for at source, in that we have a fixed exchange rate with our customer that lasts 12 months (this is the current situation within our S.C.), this should stablise the incoming funds.
Outgoing will be 'live' on 'payday', yes it may fluctuate but in order for the business to be viable it needs to be this way.
Split terms will be laid out, clearly, not crossed this bridge yet as we do not have the green light.
We are not planning to start for 12 months at the earliest, but I thought it would be best to raise the question to people in the know so we can compile a list of problems that we need to overcome.
Second comment;
No, we would (potentially) leave our current employer, not sure what you mean? Therefore we are preparing a case to present to them as a proposal to sub contract this service, only they see it as a non-core activity.
ETA; yes we have to go limited, there is potential for us to provide industrial assessments and advice to 'go / no-go' on hugely complex and expensive industrial contracts, cannot risk that.
What would you suggest then, as there are only two of us, I'm all for constructive feedback but to say there are loads of problems propose no solutions is just pointless.
Options so far;
Two companies 1 UK / 1 GmbH;
UK holds the contract with customer and my partner is paid by the GmbH (we both own 50:50) of each company.
One Company;
We both are employed and pay our respective taxes locally, seems to be specialist Payroll companies who can support this.
Options so far;
Two companies 1 UK / 1 GmbH;
UK holds the contract with customer and my partner is paid by the GmbH (we both own 50:50) of each company.
One Company;
We both are employed and pay our respective taxes locally, seems to be specialist Payroll companies who can support this.
Trexthedinosaur said:
What would you suggest then, as there are only two of us, I'm all for constructive feedback but to say there are loads of problems propose no solutions is just pointless.
Options so far;
Two companies 1 UK / 1 GmbH;
UK holds the contract with customer and my partner is paid by the GmbH (we both own 50:50) of each company.
One Company;
We both are employed and pay our respective taxes locally, seems to be specialist Payroll companies who can support this.
I would suggest you speak to an accountant rather than expect PH to solve this for you.Options so far;
Two companies 1 UK / 1 GmbH;
UK holds the contract with customer and my partner is paid by the GmbH (we both own 50:50) of each company.
One Company;
We both are employed and pay our respective taxes locally, seems to be specialist Payroll companies who can support this.
Hello Monkey, we are planning to speak to both a UK and German based accountant, as above, we have to get a green light first so we have approximately 12 months, I find its best to plan as much as possible to avoid surprises.
I want to return to the UK from Germany and I am pushing to register the business in UK, if anyone has any experience of this particular situation / or similar then excellent, this is what I am posting for and perhaps how they overcame the situation or a recommendation to a professional tax specialist and / or accountant, clearly it will not be solved by PH as there are no details available other than the basic structure; I would gladly give the work to a fellow PHer rather than rely on a Google search, I expect nothing formal for free.
Thanks.
As a note, I have already spoken to my accountant (Not PwC as above) and he is not an expert in this area so is checking with his colleagues.
I want to return to the UK from Germany and I am pushing to register the business in UK, if anyone has any experience of this particular situation / or similar then excellent, this is what I am posting for and perhaps how they overcame the situation or a recommendation to a professional tax specialist and / or accountant, clearly it will not be solved by PH as there are no details available other than the basic structure; I would gladly give the work to a fellow PHer rather than rely on a Google search, I expect nothing formal for free.
Thanks.
As a note, I have already spoken to my accountant (Not PwC as above) and he is not an expert in this area so is checking with his colleagues.
Get good tax advice from a proper accountant/tax advisor. Get a bombproof contract between you two in case you fall out. Your partner should be able to be "employed" by the UK Ltd co, as well as a shareholder, providing there is a UK resident director (you), he will just have to pay his taxes in Germany which would be up to him to sort out. Don't expect it to be easy. Double the predictions for your expected operating costs i.e. don't be too rosy in your outlook, running a a business comes with way more costs than you envisage at the outset. Think about selling your idea, not based on "lower cost" but better service/quality of outcome.
Good luck.
Good luck.
bulldong said:
Get good tax advice from a proper accountant/tax advisor. Get a bombproof contract between you two in case you fall out. Your partner should be able to be "employed" by the UK Ltd co, as well as a shareholder, providing there is a UK resident director (you), he will just have to pay his taxes in Germany which would be up to him to sort out. Don't expect it to be easy. Double the predictions for your expected operating costs i.e. don't be too rosy in your outlook, running a a business comes with way more costs than you envisage at the outset. Think about selling your idea, not based on "lower cost" but better service/quality of outcome.
Good luck.
Thanks bulldong, seems sensible, I will start googling / emailing. Good luck.
I will propose that he is employed by the UK company and I will be the resident "director".
We are quite lucky in that the initial investment is minimal (other than time), we can get paid prior to starting any work, we can both work from home bar the travel, its a very low risk for quite a large reward, I have ran the fixed costs based upon the costs I incur whilst providing the service as a PAYE, I now need to study operating costs (and will double it to be safe, thanks).
Unfortunately the idea itself is worthless, you would need to establish the service (which is assessed by our current employer) but if we can secure a "sole-provider" contract (which we general award our suppliers) then the idea becomes worth something (and this is the real long term plan).
Trexthedinosaur said:
bulldong said:
Get good tax advice from a proper accountant/tax advisor. Get a bombproof contract between you two in case you fall out. Your partner should be able to be "employed" by the UK Ltd co, as well as a shareholder, providing there is a UK resident director (you), he will just have to pay his taxes in Germany which would be up to him to sort out. Don't expect it to be easy. Double the predictions for your expected operating costs i.e. don't be too rosy in your outlook, running a a business comes with way more costs than you envisage at the outset. Think about selling your idea, not based on "lower cost" but better service/quality of outcome.
Good luck.
Thanks bulldong, seems sensible, I will start googling / emailing. Good luck.
I will propose that he is employed by the UK company and I will be the resident "director".
We are quite lucky in that the initial investment is minimal (other than time), we can get paid prior to starting any work, we can both work from home bar the travel, its a very low risk for quite a large reward, I have ran the fixed costs based upon the costs I incur whilst providing the service as a PAYE, I now need to study operating costs (and will double it to be safe, thanks).
Unfortunately the idea itself is worthless, you would need to establish the service (which is assessed by our current employer) but if we can secure a "sole-provider" contract (which we general award our suppliers) then the idea becomes worth something (and this is the real long term plan).
By selling your idea I meant sell the idea to your boss not on it being cheaper but being better value because the service is better or whatever, rather than it solely being cheaper.
KevinCamaroSS said:
By sole provider do you mean the only supplier to the company you currently work for?
Going forward would you be providing services to other companies as well?
If not, you would need to look into the IR35 rules as well.
Yes, only, too many Ethics and potential COI otherwise.Going forward would you be providing services to other companies as well?
If not, you would need to look into the IR35 rules as well.
bulldong said:
Sorry, I misplaced the comma.
By selling your idea I meant sell the idea to your boss not on it being cheaper but being better value because the service is better or whatever, rather than it solely being cheaper.
Funnily enough my business partner is my boss.By selling your idea I meant sell the idea to your boss not on it being cheaper but being better value because the service is better or whatever, rather than it solely being cheaper.
We have already discussed the idea with our Senior Manager who is targeted to reduce headcount, this seems an easy win for him and still retain our skills / services ... and generally budget for services is easier to obtain.
We are currently reviewing the Ethics rules around submitting a business proposal whilst being an employee as the service contract needs to go for tender to comply with internal rules.
Many issues on the horizon, some will be quite difficult but we stand to gain a better income and quality of life and the risk of preparing the business case is zero other than a bit of time.
We are approaching this in stages, step 1 is outline proposal of the company, the service and the "how", if it is rejected at this stage, never mind and back to the drawing board.
Trexthedinosaur said:
Yes, only, too many Ethics and potential COI otherwise.
You will need to look into the IR35 angle. Normally HMRC take the view that if you are providing services to a single company then you will be viewed as 'employees' and they will demand NI contributions from your customer. There are ways round this, but you definitely need to look into it.KevinCamaroSS said:
Trexthedinosaur said:
Yes, only, too many Ethics and potential COI otherwise.
You will need to look into the IR35 angle. Normally HMRC take the view that if you are providing services to a single company then you will be viewed as 'employees' and they will demand NI contributions from your customer. There are ways round this, but you definitely need to look into it.bulldong said:
I'm quite sure IR35 only applies if it's to do with self employment, not a Ltd co.
You have that completely back to front. The IR35 rules are aimed SPECIFICALLY at what HMRC refers to as "intermediaries". Their definition of an "intermediary" is something that is NOT a human being, i.e. a self employed sole trader.The most common form of "intermediary" is a limited company. Other intermediaries could be partnerships, trusts or charities.
Sole traders NEVER need to apply IR35 to their activities. If a self employed individual is found to have been engaged in an activity that should really have been treated as an employment, the business or organisation that engaged him will be asked to pay over underpaid PAYE and Class 1 NI that they should have calculated on his/her salary.
If an individual uses an intermediary such as a limited company through which his engagement is paid, if HMRC decides that the company was used as an intermediary in order to block him being reclassified as an employee, then the individual must calculate PAYE and Class 1 NI based on the income his company received and then pay that underpaid tax using the IR35 rules FROM HIS OWN COMPANY. That is the reason why some businesses will only engage individuals if the individual sets up a limited company. This means that the "employer" is off the hook when it comes to having to pay over any underpaid PAYE or NI. The burden falls on the "intermediary".
Since last April,any "intermediary"£ operating with a government entity will have PAYE and NI deducted at source BEFORE payment to the intermediary.
Eric Mc said:
bulldong said:
I'm quite sure IR35 only applies if it's to do with self employment, not a Ltd co.
You have that completely back to front. The IR35 rules are aimed SPECIFICALLY at what HMRC refers to as "intermediaries". Their definition of an "intermediary" is something that is NOT a human being, i.e. a self employed sole trader.The most common form of "intermediary" is a limited company. Other intermediaries could be partnerships, trusts or charities.
Sole traders NEVER need to apply IR35 to their activities. If a self employed individual is found to have been engaged in an activity that should really have been treated as an employment, the business or organisation that engaged him will be asked to pay over underpaid PAYE and Class 1 NI that they should have calculated on his/her salary.
If an individual uses an intermediary such as a limited company through which his engagement is paid, if HMRC decides that the company was used as an intermediary in order to block him being reclassified as an employee, then the individual must calculate PAYE and Class 1 NI based on the income his company received and then pay that underpaid tax using the IR35 rules FROM HIS OWN COMPANY. That is the reason why some businesses will only engage individuals if the individual sets up a limited company. This means that the "employer" is off the hook when it comes to having to pay over any underpaid PAYE or NI. The burden falls on the "intermediary".
Since last April,any "intermediary"£ operating with a government entity will have PAYE and NI deducted at source BEFORE payment to the intermediary.
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