Issue a new share in a company and more HELP!
Issue a new share in a company and more HELP!
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citychap26

Original Poster:

1,307 posts

260 months

Wednesday 19th September 2007
quotequote all
Hi Guys,

Here's my problem. I failed to file my return on time so my ltd company got closed down. I have invoices outstanding from May 2007 until now which my agents said they would only pay to an umbrella company.

However I have come up with a better idea. I have a friend who has a company with was trading before May 2007 and is due for a return now which will be zero, as he has not traded.

I have been told that I can set up a contract with the agent and mate's company (call it COMP_X) and realise the outstanding invoices.

Now here's my problem:

1. I will need to become an employee of the company to get paid. How do I do this ?
2. I do not want my mate to be liable for any tax etc.
3. Do I need to issue a new share in the company? If so how do I go about it?

IS there anything else I need to worry about?

Also my agents are saying I need the following : Professional Indemnity insurance, employers liability cover and Public liability cover. Is this true ?

Cheers

Sunil

Eric Mc

125,770 posts

295 months

Wednesday 19th September 2007
quotequote all
Who's been a silly billy then?

If you are to be paid through your friend's company, there are only two ways this can be done.

1. You could become an employee or director of your friend's company and receive the income as salary through that company. That means, of course, that your friend's company becomes your employer and is therefore legally obliged to register for PAYE and process your salary under the PAYE system. The company will, of course, have to deduct PAYE and Class 1 Employee's National Insurance from your Gross Salary. In addition, the company MUST calculate the additional Employer's NI on your Gross Salary and pay it over to the Revenue.

2. You could become a shareholder of your friends company which could, of course, entitle you to a dividend payable from the company's profits. The dividend will not be subject to any income tax or National Insurance at source payable by the company - so that is your friend off the hook from that point of view. Obviously, you, as an individual, will be subject to Income Tax on the dividend amount received but only if your overall income in the relevant tax year exceeds the Higher Rate tax threshold.
The problem is that in order that the company can pay you a dividend, the company MUST issue the sales invoices to the people YOU worked for. That will. of course, generate income and profits in the company which will, more than likely, result in the company having to pay Corporation Tax on those profits.

Another aspect of dividends is that, once they have been decided by the directors (at a properly minuted meeting of the directors) - ALL the shareholders of the company are entitled to a dividend based on their shareholdings. This means, in law, your friend would be entitled to his dividend from the profits YOU generated. This can be got around by the friend signing a waiver passing up his entitlement to his dividend. This waiver should also be properly minuted and noted.


Finally, your friend's company needs to have entered into a formal contract with the people who you worked for. The nature of the terms and conditions of the contract will determine whther IR35 issues arise.

citychap26

Original Poster:

1,307 posts

260 months

Wednesday 19th September 2007
quotequote all
"2. You could become a shareholder of your friends company which could, of course, entitle you to a dividend payable from the company's profits. The dividend will not be subject to any income tax or National Insurance at source payable by the company - so that is your friend off the hook from that point of view. Obviously, you, as an individual, will be subject to Income Tax on the dividend amount received but only if your overall income in the relevant tax year exceeds the Higher Rate tax threshold.
The problem is that in order that the company can pay you a dividend, the company MUST issue the sales invoices to the people YOU worked for. That will. of course, generate income and profits in the company which will, more than likely, result in the company having to pay Corporation Tax on those profits.

Another aspect of dividends is that, once they have been decided by the directors (at a properly minuted meeting of the directors) - ALL the shareholders of the company are entitled to a dividend based on their shareholdings. This means, in law, your friend would be entitled to his dividend from the profits YOU generated. This can be got around by the friend signing a waiver passing up his entitlement to his dividend. This waiver should also be properly minuted and noted."

Clearly I would like to go with option 2.

I am a consultant and have been working for a company, not sure how I'm going to get out of either having to be an employee or a director of the company.

I do not really want to go through the hassle of setting up a PAYE system etc.

Eric Mc

125,770 posts

295 months

Wednesday 19th September 2007
quotequote all
If you are going to go down the dividend route through your friend's company, your friend -

must be willing to make you a part owner of their business

must be prepared to pay Corporation Tax on the resultant company profits

must be realise that his company could be subject to an IR35 claim by the Revenue

could be walking into PAYE problems by NOT paying you through the PAYE system

Also, your friend's company will have been set up with particular business activities in mind - which will be set out in the company's Memorandum and Articles of Association. The trading activity you introduce to the company has to be within the scope of activities as set out in the Memo and Arts.

citychap26

Original Poster:

1,307 posts

260 months

Wednesday 19th September 2007
quotequote all
Hi Eric,

My old company did not have a PAYE system... I was simply paid by the agency in to the company account.

I'm sure he will not have any issues in making me part owner. Also I am more that willing to pay the Corporation Tax.

I don't see why it could be subject to IR35. I am providing a business analyst role to a bank in the city.

If only I'd bloody signed my return and sent it off!! I had all my accounts prepared. I'm such an idiot!

Eric Mc

125,770 posts

295 months

Wednesday 19th September 2007
quotequote all
Regarding IR35, the COMPANY needs to sort out a contract with the people you are doing the work for. It is VITAL that the relationship is properly established between the COMPANY and the orgainsation the COMPANY is working for.

If you peronally pay the company's Corporation Tax liability - or inject personal money into the company in order to allow it to draw the Corporation tax cheque from its own bank account, you will be creating a loan relationship between the company and you - in that you personally will have settled a company liability and the company will now owe that money back to you.

If you waive the right to be repaid this "donation" you have made to the company, the company will essentially have to declare the money you gave as income and will then have to pay Corporation Tax on that amount.

citychap26

Original Poster:

1,307 posts

260 months

Wednesday 19th September 2007
quotequote all
Eric,

You're a bit of a legend redface)

I am happy to pay corporation tax. I just want to make sure that my buddy is not liable for any personal tax as a result of me realising my outstanding invoices via his company.

Cheers

Sunil

Eric Mc

125,770 posts

295 months

Wednesday 19th September 2007
quotequote all
Just be careful - and make sure he is aware of the dividend requirements if you are going to get the company to pay you in the form of dividends.

Do you know whether the company is actually ALLOWED pay dividends? Sometimes companies can find they are unable to pay dividends because of liquiidity or directors' loan account issues.