Shareholding vs invoicing as a Ltd company.
Discussion
Throwaway account due to financial situation.
3 years ago a close friend asked me to come on board with his new start up. We agreed a 25% stake and a trial period of 1 year which enabled me to take a secondment from my previous employer. I am registered as a Director and have taken a salary of £50k since start up.
At the end of year 1 my salary was in excess of what I’d been paid. The end of year two saw me owed £12k, which I’ve yet to claim. We’re currently processing year three and I should be owed around £60k in total.
Alongside this, I also do some work for another company of his, but not as a director. This company owes me around £20k.
Originally I expected I would be able to set up a Ltd company and invoice both companies for the amounts owed and then pay myself a salary and dividends from my own company. I would/could also add my wife as a director and share holder.
With IR35 and currently receiving a salary, I’m not sure that I wouldn’t be skirting/breaking rules by doing this. Whatever we do must be above board!
I’ve run through the situation with our accountant who’s in unfamiliar territory with this, so I need to find someone who can clarify exactly how we need to move forward to be able to sleep soundly. A different accountant? An IFA? Someone else?
We’re both reluctant for me to be a shareholder of company 1 if there’s a clear way of sorting through invoicing, but it is a worst case scenario option.
3 years ago a close friend asked me to come on board with his new start up. We agreed a 25% stake and a trial period of 1 year which enabled me to take a secondment from my previous employer. I am registered as a Director and have taken a salary of £50k since start up.
At the end of year 1 my salary was in excess of what I’d been paid. The end of year two saw me owed £12k, which I’ve yet to claim. We’re currently processing year three and I should be owed around £60k in total.
Alongside this, I also do some work for another company of his, but not as a director. This company owes me around £20k.
Originally I expected I would be able to set up a Ltd company and invoice both companies for the amounts owed and then pay myself a salary and dividends from my own company. I would/could also add my wife as a director and share holder.
With IR35 and currently receiving a salary, I’m not sure that I wouldn’t be skirting/breaking rules by doing this. Whatever we do must be above board!
I’ve run through the situation with our accountant who’s in unfamiliar territory with this, so I need to find someone who can clarify exactly how we need to move forward to be able to sleep soundly. A different accountant? An IFA? Someone else?
We’re both reluctant for me to be a shareholder of company 1 if there’s a clear way of sorting through invoicing, but it is a worst case scenario option.
as above speak to an accountant but it sounds like you're in reality working for one person so quite likely to fail the IR35 tests if HMRC did have a look at it.
Working from a Ltd only really works if you have multiple clients and clearly are not reliant on one of them to keep your business going.
Working from a Ltd only really works if you have multiple clients and clearly are not reliant on one of them to keep your business going.
Company 1:
You refer to a salary... have payments to date been made via payroll/PAYE? Do you have an employment contract that lays out how you will be paid?
Company 2:
How have you been engaged/employed?
Do the companies have the money to pay? Are you simply trying to find the most tax efficient way to do this? Do the fact of either engagement place them outside IR35?
You refer to a 25% stake, but also that you don't have a shareholding/want to avoid doing so? Either you have a 25% shareholding or you don't... which is it?
If you are a Director of a Ltd Company I doubt you can place that engagement outside IR35 and invoice through a different Ltd company for that service...
You refer to a salary... have payments to date been made via payroll/PAYE? Do you have an employment contract that lays out how you will be paid?
Company 2:
How have you been engaged/employed?
Do the companies have the money to pay? Are you simply trying to find the most tax efficient way to do this? Do the fact of either engagement place them outside IR35?
You refer to a 25% stake, but also that you don't have a shareholding/want to avoid doing so? Either you have a 25% shareholding or you don't... which is it?
If you are a Director of a Ltd Company I doubt you can place that engagement outside IR35 and invoice through a different Ltd company for that service...
Edited by UpTheIron on Monday 23 August 16:21
APontus said:
Should be bread and butter for an accountant. Not an IFAs bag.
Cheers, I went through everything with our accountant and we’re stuck with IR35, which they’d said was my responsibility to ensure I was compliant with. I feel they’re more of a book keeper/payroll sorter than somewhere to turn for advice. HootersGsy said:
as above speak to an accountant but it sounds like you're in reality working for one person so quite likely to fail the IR35 tests if HMRC did have a look at it.
Working from a Ltd only really works if you have multiple clients and clearly are not reliant on one of them to keep your business going.
Yes, two different fields and vastly different roles, but through one persons company. In theory I could do more of the work I do for company two, but I don’t want to!Working from a Ltd only really works if you have multiple clients and clearly are not reliant on one of them to keep your business going.
UpTheIron said:
Company 1:
You refer to a salary... have payments to date been made via payroll/PAYE? Yes
Do you have an employment contract that lays out how you will be paid? No, but it would be my job to make one if needed!
Company 2:
How have you been engaged/employed?
On and off for similar time to Company 1, since 2018. The works predominantly a favour until he’s build Company 2 up enough to employ someone full time.
Do the companies have the money to pay? Yes, both companies have solid reserves
Are you simply trying to find the most tax efficient way to do this? Yes, without becoming a shareholder of Company 1
Do the fact of either engagement place them outside IR35? This is the unknown!
You refer to a 25% stake, but also that you don't have a shareholding/want to avoid doing so? Either you have a 25% shareholding or you don't... which is it?
We have a (verbal) agreement that I will receive remuneration to the sum of 25% of the companies net profit, but the 25% includes my current salary. This is part of the reason for wanting to work through my own Ltd, I can then stop my salaried income from his company.
If you are a Director of a Ltd Company I doubt you can place that engagement outside IR35 and invoice through a different Ltd company for that service...
There is a sub question over whether I could receive a basic salary as a director and invoice for the numerous other aspects I cover but are not necessarily expected to within my title - recruitment, training, payroll etc. It seems illogical that I can pay another company to handle these things, yet cannot own those companies even though I’m not an owner of Company 1?
Hopefully that all reads well UpTheIron, it seemed easier to answer each question as we went along! You refer to a salary... have payments to date been made via payroll/PAYE? Yes
Do you have an employment contract that lays out how you will be paid? No, but it would be my job to make one if needed!
Company 2:
How have you been engaged/employed?
On and off for similar time to Company 1, since 2018. The works predominantly a favour until he’s build Company 2 up enough to employ someone full time.
Do the companies have the money to pay? Yes, both companies have solid reserves
Are you simply trying to find the most tax efficient way to do this? Yes, without becoming a shareholder of Company 1
Do the fact of either engagement place them outside IR35? This is the unknown!
You refer to a 25% stake, but also that you don't have a shareholding/want to avoid doing so? Either you have a 25% shareholding or you don't... which is it?
We have a (verbal) agreement that I will receive remuneration to the sum of 25% of the companies net profit, but the 25% includes my current salary. This is part of the reason for wanting to work through my own Ltd, I can then stop my salaried income from his company.
If you are a Director of a Ltd Company I doubt you can place that engagement outside IR35 and invoice through a different Ltd company for that service...
There is a sub question over whether I could receive a basic salary as a director and invoice for the numerous other aspects I cover but are not necessarily expected to within my title - recruitment, training, payroll etc. It seems illogical that I can pay another company to handle these things, yet cannot own those companies even though I’m not an owner of Company 1?
Edited by UpTheIron on Monday 23 August 16:21
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