An interesting new business structure?
Discussion
Myself and two other self-employed people, each with our own businesses but in a similar field, are thinking of getting together and asking a top salesman (whom we know and is in the same field) to join us. We will get work, he will get money.
The normal route would be to form a limited company, and be directors, and employ the salesman with PAYE, NI etc. However, that brings complication, overheads and expense. Being self-employed by nature, we prefer to avoid them if possible.
We were considering some kind of holding 'entity', say 'XYZ', which is basically just a corporate image, stationery and a bank account, of which we three are joint signatories. The salesman works on commission only, but it's a big percentage and he's very good at what he does. So - he comes back with (say) a £20K project. The three of us divide up who does what and we each invoice XYZ in the usual way from our existing businesses. The salesman also invoices XYZ for his commission.
At the end of the year, since we have minimal overheads, we expect the XYZ account to have a fair amount of money in it (since we don't have buildings, staff etc to maintain). We can either save it as working captial, or buy some kit if we need it, or simply share it four ways as a Christmas bonus.
We will draw up some legal contracts which give each of us an exit strategy if we fall out, but what else do we need to consider?
The normal route would be to form a limited company, and be directors, and employ the salesman with PAYE, NI etc. However, that brings complication, overheads and expense. Being self-employed by nature, we prefer to avoid them if possible.
We were considering some kind of holding 'entity', say 'XYZ', which is basically just a corporate image, stationery and a bank account, of which we three are joint signatories. The salesman works on commission only, but it's a big percentage and he's very good at what he does. So - he comes back with (say) a £20K project. The three of us divide up who does what and we each invoice XYZ in the usual way from our existing businesses. The salesman also invoices XYZ for his commission.
At the end of the year, since we have minimal overheads, we expect the XYZ account to have a fair amount of money in it (since we don't have buildings, staff etc to maintain). We can either save it as working captial, or buy some kit if we need it, or simply share it four ways as a Christmas bonus.
We will draw up some legal contracts which give each of us an exit strategy if we fall out, but what else do we need to consider?
You can only trade under the following "scenarios" - sole trader, partnership (normal or LLP) or a limited company.
If you are considering setting up a business with another person - then that would normally constitute a partnership. If you hold the business to the outside world to be a single business, then the tax and VAT authorities would expect you to operate formally under that structure. If you are operating a genuine bona fide sole tradership, then you both could not use the same business name, address etc.
Also, the VAT authorities take a dim view of someone trying to split a single business between two or more separate sole-traders. They get especially irked if one or more of the sole traders has insufficient "sales" income of their own to necessitate having to VAT register. They call this technique "disaggregation" and the VAT authorities have full power to asssess individuals who thought they were trading separtely as if they were running a combined business. I've seen the VAT people do this.
Finally, if you bring a third person into the equation, his status MUST be clear - he is either an employee or not an employee. This status is NOT a matter of choice but a matter of fact. Paying someone commission only is not an indicator one way or the other. There are lots of "employed" salemen who get paid wholly or mainly on commission. They are still taxed under PAYE.
If you are considering setting up a business with another person - then that would normally constitute a partnership. If you hold the business to the outside world to be a single business, then the tax and VAT authorities would expect you to operate formally under that structure. If you are operating a genuine bona fide sole tradership, then you both could not use the same business name, address etc.
Also, the VAT authorities take a dim view of someone trying to split a single business between two or more separate sole-traders. They get especially irked if one or more of the sole traders has insufficient "sales" income of their own to necessitate having to VAT register. They call this technique "disaggregation" and the VAT authorities have full power to asssess individuals who thought they were trading separtely as if they were running a combined business. I've seen the VAT people do this.
Finally, if you bring a third person into the equation, his status MUST be clear - he is either an employee or not an employee. This status is NOT a matter of choice but a matter of fact. Paying someone commission only is not an indicator one way or the other. There are lots of "employed" salemen who get paid wholly or mainly on commission. They are still taxed under PAYE.
Thanks for the info Eric.
At least 2 of the 3 of us are VAT registered anyway, and 'XYZ'' would have to be be VAT registered also, for threshold, margin and credibility reasons.
We were hoping he could invoice XYZ on a monthly basis ('Commission £4000' etc) and run his own books just like we do. But then, I think the IR don't allow self-employed people to have just one customer...
It's important to the three of us that we can still have our 'own' clients: ones that are nothing to do with the salesman or XYZ. That's because we have some already, and need something to return to if it all goes breasts-skyward one day for whatever reason. In other words, we might be working 3 days a week for XYZ, and invoicing it accordingly, and 2 days a week on outside work.
Eric Mc said:
Also, the VAT authorities take a dim view of someone trying to split a single business between two or more separate sole-traders. They get especially irked if one or more of the sole traders has insufficient "sales" income of their own to necessitate having to VAT register. They call this technique "disaggregation" and the VAT authorities have full power to asssess individuals who thought they were trading separtely as if they were running a combined business. I've seen the VAT people do this.
At least 2 of the 3 of us are VAT registered anyway, and 'XYZ'' would have to be be VAT registered also, for threshold, margin and credibility reasons.
Eric Mc said:
Finally, if you bring a third person into the equation, his status MUST be clear - he is either an employee or not an employee. This status is NOT a matter of choice but a matter of fact. Paying someone commission only is not an indicator one way or the other. There are lots of "employed" salemen who get paid wholly or mainly on commission. They are still taxed under PAYE.
We were hoping he could invoice XYZ on a monthly basis ('Commission £4000' etc) and run his own books just like we do. But then, I think the IR don't allow self-employed people to have just one customer...
It's important to the three of us that we can still have our 'own' clients: ones that are nothing to do with the salesman or XYZ. That's because we have some already, and need something to return to if it all goes breasts-skyward one day for whatever reason. In other words, we might be working 3 days a week for XYZ, and invoicing it accordingly, and 2 days a week on outside work.
Probably running it as a separate limited company is the "cleanest" way of doingY this. Alternatively, you could set up a separate "partnership" (with its own VAT number too).
Paying the salesman woulkd have to be done under PAYE. I can't see any other alternative. Even if he did work for other people you would still have to pay him as an employee and charge PAYE/NI. Even if he had two or more other "jobs" it would not automatically allow you to treat him as if he was "Self Employed" either.
Paying the salesman woulkd have to be done under PAYE. I can't see any other alternative. Even if he did work for other people you would still have to pay him as an employee and charge PAYE/NI. Even if he had two or more other "jobs" it would not automatically allow you to treat him as if he was "Self Employed" either.
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