Husband and wife contracting through same Ltd Co. - good or bad idea?

[The Wikir Man]

If your wife doesn't earn enough to be VAT registered, then there may well be a case for her to have her own business rather than add an extra 17.5% (or, if you are reading this in 2011, 20%) onto her fees.

[Clare@InTouch]

Further to previous posts, you may also want to consider what will happen in the future for both of you. If you build up a lot of money and then want to close, taking advantage of entrepreneur's relief, your wife using the company too may make it more difficult (she may not want to close, or vice versa).

Also, having two companies gives you both individual limited liability - if one of you gets sued, you don't both lose out. Worst case scenario, it's also easier should you ever split.

[Wanderer]

If your wife doesn't earn enough to be VAT registered, then there may well be a case for her to have her own business rather than add an extra 17.5% (or, if you are reading this in 2011, 20%) onto her fees.

Good point, but it does depend on who she is dealing with. If her company makes supplies to a VAT registered company then it makes no odds to them so she might as well VAT register and can claim quite a nice cut of the VAT back through the Flat Rate Scheme.

If she makes supplies to non VAT registered clients and she can say under the threashold then it's best not to register unless she has a lot of inputs (ie, buying and selling stuff).

[Kess]

If she makes supplies to non VAT registered clients and she can say under the threashold then it's best not to register unless she has a lot of inputs (ie, buying and selling stuff).

As my wife works in the educational sector then I suspect she will charge very little VAT (schools are exempt, apparently).

BTW I've just spoken to the accountant and he recommended separate companies.

[BolshieBastard]

What... one that tells you what you are paying them to hear...

In this scenario, there is at least the possibility that HMRC would view the situation as evidence that the Ltd company is a purely artificial structure - not truly in business on it's own account.

That doesn't mean they will - clearly they didn't in your case, but if your accountant didn't at least caution you about this, then I'd hardly call them 'decent'.

Sorry but that's crap as well.

With your mentality, you'd expect this accontancy firm to have regular HMRC investigations of their clients!

Nope, none of it. But you carry on believing what you will.

[Wanderer]

As my wife works in the educational sector then I suspect she will charge very little VAT (schools are exempt, apparently).

OK, I understand that some supplies are zero rated for VAT but I'm wondering how would this work in practice. Not a specific question aimed at Kess, just a general query...

Let's say I am VAT registered LTD and I supply services to (say) a school or charity which doesn't pay VAT. Do I charge them VAT or is my supply zero rated so I can't charge them VAT? How would I be sure I'm doing the right thing if I don't charge VAT? Or do I charge VAT and then the school claim it back though their VAT return? If they do reclaim it, then how does this sit with my LTD if I'm using the FRS?

BTW I've just spoken to the accountant and he recommended separate companies.

Sure he would, he gets another grand a year in fees out of you that way.

[Clare@InTouch]

OK, I understand that some supplies are zero rated for VAT but I'm wondering how would this work in practice. Not a specific question aimed at Kess, just a general query...

Let's say I am VAT registered LTD and I supply services to (say) a school or charity which doesn't pay VAT. Do I charge them VAT or is my supply zero rated so I can't charge them VAT? How would I be sure I'm doing the right thing if I don't charge VAT? Or do I charge VAT and then the school claim it back though their VAT return? If they do reclaim it, then how does this sit with my LTD if I'm using the FRS?

If the supplies you're making are zero rated or exempt you simply don't charge VAT - the VAT Acts have specific lists of exactly what supplies are in each category. Check out schedules 8 and 9 in the legislation below (specifically schedule 9 group 6 for education):

Value Added Tax Act 1994

[MrsKay]

Husband and wife contracting through same Ltd Co - both in IT

Hi everyone,

As my situation is rather similar to the OP, I thought it might be appropriate to post my questions here.

I started contracting in Jun this year through my Ltd Co. I am the only director, and the only shareholder, but both myself and my husband MrKay, are PAYE employees of the company. The Ltd Co paid MrKay a small salary (£100 a month) for infrastructure/networking etc type of work.

MrKay has recently left his permie job and started contracting through the same Ltd Co.
As he has earned quite a big permie salary todate, plus his BIK has used up all his personal allowance, I am not planning to pay him anymore salary.

In the next financial (Tax) year I plan to allot more shares to MrKay so that we hold 50/50 of the shares.

My questions are:

1) Should I make MrKay a director of the company? I am worried that as an employer, the Ltd Co is not paying MrKay a salary while he is now a full time employee.
2) Is it risky for husband and wife to contract through the same Ltd Co? as far as s660 is concerned?

Many thanks,
MrsKay

[Clare@InTouch]

Hi everyone,

As my situation is rather similar to the OP, I thought it might be appropriate to post my questions here.

I started contracting in Jun this year through my Ltd Co. I am the only director, and the only shareholder, but both myself and my husband MrKay, are PAYE employees of the company. The Ltd Co paid MrKay a small salary (£100 a month) for infrastructure/networking etc type of work.

MrKay has recently left his permie job and started contracting through the same Ltd Co.
As he has earned quite a big permie salary todate, plus his BIK has used up all his personal allowance, I am not planning to pay him anymore salary.

In the next financial (Tax) year I plan to allot more shares to MrKay so that we hold 50/50 of the shares.

My questions are:

1) Should I make MrKay a director of the company? I am worried that as an employer, the Ltd Co is not paying MrKay a salary while he is now a full time employee.
2) Is it risky for husband and wife to contract through the same Ltd Co? as far as s660 is concerned?

Many thanks,
MrsKay

1. Only if you want to. If he's happy not having a salary then that's fine, assuming he's not going to sue you at a later date! You may want to pay a small salary anyway as that would result in him getting a tax refund if he's taking a sudden drop in pay. It's a refund he'd get anyway, but this way you get the refund now rather than waiting until after the tax year ends next April.

2. No. If you're married then s660 shouldn't be an issue as long as you have the same shares with equal rights, especially if you're both contracting through the company and are adding equal value to it. Where you get into trouble is when you have unmarried partners, alphabet shares, dividend waivers etc.

[craig1]

2) Is it risky for husband and wife to contract through the same Ltd Co? as far as s660 is concerned?

Many thanks,
MrsKay

On that last point, there's absolutely no risk as long as you're both seriously looking for contracts rather than income splitting to avoid taxation. Working that way actually reduces business risk as you're no longer the one-man-band company that seems to be like a red flag to a bull as far as HMRC are concerned.