Form own LTD or use Wife's?

[techadept]

Hi Folks,

I've searched the forums and drawn a blanks hence the post; wouldn't be at all surprised if this has been asked many times before however so apologies for that.

I am starting-out as a LTD contractor for the first time, my wife is currently contracting a 3 day week with her own LTD. she also has a separate Personal Coaching sideline which is currently operating at a loss (ie. she is funding some expensive training with only 1 paying client as its a very new venture).

My question is, should I form my own LTD or work for her?

Obviously I'd like to chose the most tax efficient route.

I will be working full-time on a day rate, we are both in IT, she has limited expenses (apart from the current run of training courses) and I will have higher regular expenses as I will be working away during the week, so incurring mileage and other daily expenses.

Your advice would be appreciated!

[pmeswani]

Hi Folks,

I've searched the forums and drawn a blanks hence the post; wouldn't be at all surprised if this has been asked many times before however so apologies for that.

I am starting-out as a LTD contractor for the first time, my wife is currently contracting a 3 day week with her own LTD. she also has a separate Personal Coaching sideline which is currently operating at a loss (ie. she is funding some expensive training with only 1 paying client as its a very new venture).

My question is, should I form my own LTD or work for her?

Obviously I'd like to chose the most tax efficient route.

I will be working full-time on a day rate, we are both in IT, she has limited expenses (apart from the current run of training courses) and I will have higher regular expenses as I will be working away during the week, so incurring mileage and other daily expenses.

Your advice would be appreciated!

Trust me.. start your own Ltd Company, not just from a tax point of view, but from a legal point of view.

If you become a director of your wifes failing company, you are taking joint responsibility for your wifes debt, and may end up taking full ownership of her failing company's debt, especially if she does a runner.

If you become an employee of your wifes failing company, what guarantee that she will pay your wage and your Tax / NI Contributions? (BTW, this method of employment / working is not tax efficient!).

[techadept]

Whoops it looks like I have cocked-up with the details in my question a little here.

My wife's company is not failing, quite the contrary. I was simply attempting to get across (badly) the fact that she is currently using her business expenses to offset her profit, and so reducing her tax liability.. at least in the short term.

@pmeswani, thanks for your response, and I note that you say that If I become an employee of my wife's company, this method of employment / working is not tax efficient!

This is exactly the crux of my question and it would be great if you could explain why this is the case?

I take it you would suggest that we each have our own LTD companies, and there are no benefits in operating any other way?

Thanks

[Wanderer]

My question is, should I form my own LTD or work for her?

Broadly speaking, a couple have to consider how separate they want to keep their financial affairs. If a couple are financially very much together with joint personal bank accounts, joint mortgage and are in a stable relationship then I can't see any reason why they wouldn't just use the same LTD company too.

The good thing about a jointly owned company is that they could both take a small salary and share the dividends which reduces their tax burden. If one of the couple were a lower rate tax payer then the other partner's income could top up the dividends to use up the lower earner's allowance, reducing the overall tax liability. Even if they would both be higher rate tax payers, they also have to consider what would happen if one of them was to take time off studying, unemployed, pregnant, sick, caring for dependants, etc. In this situation, that partner wouldn't be earning money but they could still share the company profits, potentially reducing the tax liability.

Having a single company also reduces the amount of administration required and they could possibly save about 1,000 a year on accountancy fees, plus the cost of liability insurance etc for two companies.


On the other side of the coin, if a couple were in a relationship where they didn't own property together, kept separate bank accounts, split the bill at restaurants, fancied a bit on the side etc then they would probably want to have separate LTD companies too.


It's a rather personal decision, after considering the above you should have a chat to an accountant though bear in mind that if you go with two companies it's simpler for the accountant to do the books and they will get an extra grand a year in accountancy fees out of the deal.

[THEPUMA]

There are pros and cons to both. If you are comfortable with the financial/trust aspects, then the main downsides to 2 companies are the additional costs and administrative burden (double the number of statutory submissions).

The main advantages of 2 companies are firstly that there can be a tax advantage as you may be able to close down one of the companies if either of you has a break from working for any particular reason, which will enable you to get your hands on the reserves at a 10% personal tax cost typically as opposed to 25%, whereas with one company you would have to wait for you both to be oput of work for a reasonable period. Secondly, if either of the businesses were sold it would be preferable if it had a clean history rather than muddying the waters by having run another trade through the same company, although this may or may not be relevant in your case.

Puma

[techadept]

Thank you guys for your informative responses.

Yes thank you the current Mrs. T and my financial affairs are very much shared and in-line; we are also in a very stable and trusting relationship so that side of things is not a concern. Saving money on fees and taxes certainly is a concern, and we wish to work as smartly as we can to achieve this.

We will do as you suggest and speak to our accountant, although I have never been overly impressed with his work, he does not seem overly proactive in helping her reduce tax and is not a specialist in the contractor market, and he also seems rather expensive. Perhaps this is the time to look at a specialist accountant?

[THEPUMA]

Perhaps this is the time to look at a specialist accountant?

Definitely! Although I do have a vested interest in saying that and may or may not be cheaper than the incumbent.

Puma

[northernladuk]

We will do as you suggest and speak to our accountant, although I have never been overly impressed with his work, he does not seem overly proactive in helping her reduce tax and is not a specialist in the contractor market, and he also seems rather expensive. Perhaps this is the time to look at a specialist accountant?

I have been with both and don't think this is really in their remit unless you pay top dollar for it. It has been mentioned in qiute a few of the accountant comparison threads that there is distinct lack of proactiveness. I am not saying they are all bad but this seems to be an area where often we over expect sometimes. It's not uncommon so wouldn't particularly slate a particular accountant for this. I have to say the specialist was much better than the generic guy so money will spent IMHO.

[pmeswani]

@pmeswani, thanks for your response, and I note that you say that If I become an employee of my wife's company, this method of employment / working is not tax efficient!

This is exactly the crux of my question and it would be great if you could explain why this is the case?

I take it you would suggest that we each have our own LTD companies, and there are no benefits in operating any other way?

Thanks

If you become an employee of the wife's business, you your wife will have to pay Employee and Employer tax and NI, which could lead to about 50%. If you are a higher rate tax payer, then you could be looking at more. Guess where the money to pay the tax will come from?

If you have your own Ltd Company, you will be paying about 20% Corp Tax, and if you are on Flat Rate Scheme, you will benefit from a few extra pounds a month.

However, the amount of tax one has to pay will be dependant on IR35, etc.

[techadept]

Thank you, but I have to say you've lost me there pmeswani (ps. no offence but your avatar is very distracting)

Is your differing opinion here arising because I talked about being an employee of my wife's LTD as opposed to being director or partner?

Wanderer mentioned the advantages of a 'jointly owned company' so I guess that means a joint directorship would be advisable.

again, sorry for not being too up to speed on this

The consensus seems to be that there are more advantages than disadvantages in having two or more contractors, as directors, of a single LTD company, provided we are talking about a basic IT service being offered, with little chance of the company being split or sold in the future, and absolute trust and longevity being in-place.

IR35 is a separate issue and any investigation is not likely to be swayed by this

right?