Composite structure

**shaunbhoy** · 7 December 2006, 11:46

Tony,
best to just pay the nice man. Its not as if he will just squander it is it?

**Mordac** · 7 December 2006, 11:48

I think you'll find bodyshops donate to the Liebour party.

**expat** · 7 December 2006, 11:54

Originally posted by TonyEnglish

The only difference I can see is that in the composite, the employees are the shareholders - but it is not uncommon for say EDS staff to own shares in their comapny.

The big difference that I can see, and I bet that Brown sees it too, is that if you own shares in EDS, you own some of the capital that the company uses to make money: your dividends are a return on this investment.

But if you own shares in a composite, that is just an entry ticket to a schome to pay less tax, and your dividends are not a return on investment, but simply some of your wages for your labour, paid over in a way that is specifically intended to reduce your liability to tax.

**BoredBloke** · 7 December 2006, 11:58

The point I was making was that this will have a knock on effect to all employees who own shares in their company. How is it any different when 5 contractors are the sole shareholder within a composite and AN Other who works for EDS and who owns shares in EDS? Does it mean that the EDS guy cannot get a divi form his shares in EDS?

"The big difference that I can see, and I bet that Brown sees it too, is that if you own shares in EDS, you own some of the capital that the company uses to make money: your dividends are a return on this investment"

But they both pay divis to their employees. I don't see why one company is allowed to and one isn't

**expat** · 7 December 2006, 12:07

Originally posted by TonyEnglish

The point I was making was that this will have a knock on effect to all employees who own shares in their company. How is it any different when 5 contractors are the sole shareholder within a composite and AN Other who works for EDS and who owns shares in EDS? Does it mean that the EDS guy cannot get a divi form his shares in EDS?

"The big difference that I can see, and I bet that Brown sees it too, is that if you own shares in EDS, you own some of the capital that the company uses to make money: your dividends are a return on this investment"

But they both pay divis to their employees. I don't see why one company is allowed to and one isn't

Because in one, a dividend is a return on money invested, and in the other, it is payment for work done.

Like it or not, these 2 are not the same, because they pay different taxes.

**Denny** · 7 December 2006, 12:09

Originally posted by TonyEnglish

In the light of what was stated in the PBR by Fat Boy Brown, can somebody tell me how the structure of a composite is different to that of a bodyshop?

Both generate money off the skills/work of their employees.
Both pay their employes a PAYE salary.
Both have shareholders who get dividend payments.
In both cases their employees are free to leave their employment.

The only difference I can see is that in the composite, the employees are the shareholders - but it is not uncommon for say EDS staff to own shares in their comapny.

There is also the assumption that most who use composites are IR35 included rather than owner managed businesses, hence tax avoidance being the issue. They smack of contractors wanting all the benefits of owner management but none of the hassle of running a business or the expense of setting one up and insuring it. This easy route to more cash attitude is one typical of an employee mentality not a business mentality as well as being an attractive alternative to using a bona fide brolly whereby IR35 isn't an issue as you are taxed on most of your income anyway, minus IR proof receipted dispensations. No wonder they were on the IR radar screen.

Although the IR recognise that limited company owners can also be inside IR35, it is still harder to prove. The vast majority of limiteds, in the wider scheme of things (rather than viewing this as an IT contractor/or other one man band operation) do actually have commercial relationships with their clients that fully accord with IR35 exemption and are therefore 'in business on their own account' with many Shareholder/Directors intending to grow from acorns to saplings and perhaps into trees eventually. Otherwise, they are one man bands who don't remotely have the characteristics of a pseudo on-site, client controlled bum-on-seat hourly paid de-facto employee working for a large corporation through an EB. Instead, they market themselves to clients, get most work on referral, usually small pieces of work for a fixed sum and do most of their fee work from their own office (at home or otherwise).

**BoredBloke** · 7 December 2006, 12:10

So if the contractor was to buy shares in the composite then that too would be a return on investment. There is nothing to stop 1 share giving 1 pound and each contractor owning a number of shares in line with their rate.

**expat** · 7 December 2006, 12:18

Originally posted by TonyEnglish

So if the contractor was to buy shares in the composite then that too would be a return on investment. There is nothing to stop 1 share giving 1 pound and each contractor owning a number of shares in line with their rate.

That is certainly not a return on investment! There is no investment here: the money that bought these shares is not investment capital that genefrates the company's profit: it is only the entry ticket to a scheme.

Capitalism: a way of raising capital needed to generate wealth.

I repeat: the price of a share in a composite is not capital that generates wealth for the business. That is crucial.

**donaldduke** · 7 December 2006, 12:29

>In both cases their employees are free to leave their employment.

This statement is not correct.

In the EDS case when the employee leaves they continue to get dividends.
If you leave your composite you dont get dividends anymore.

Composite structure