Multiple Contractors Working Under 1 Company/Brand Name?

[Techforcer]

Hi Gents,

I'm relatively new to contracting, so please excuse the lack of insight.


My mother and 2 of her colleagues (who are all retiring very shortly), are looking to set themselves up, and deliver educational consultancy/training into schools.

They're planning to set up a business to do this through... The problem is, if they were all under the same firm, taking minimal salary/larger dividends, I can't see a way to seperate out who has done what work- My mother, for example is planning on only doing 1 day per week, whereas the other 2 are planning to do 2/3 days per week.

This makes a bit of a tricky sitaution for fairly paying the 3 of them, in proportion to the amount of work done (which will go up and down for all 3 of them, over time).


So, would it be better for them all to have 3 seperate LTD companies, effectively trading seperately?

They would like to trade together, under the same brand/banner- Is there any way to do this? Would a 4th company be necessary, just to provide the brand?


Many thanks in advance for your insights.

[Clare@InTouch]

They could set up a company each and then all use the same trading name - as long as none of them object to each other using the same trading name then it should be fine.

The other option is to all own shares in the company but take a salary that reflects the days they work. It wouldn't be as tax efficient, but it may be better overall if the income into three companies wouldn't be high enough to justify the professional fees involved for each one.

Gents - humpff

[DirtyDog]

1 company
3 directors
1 Class A share with voting rights each
1 Class B share for director 1 - no voting rights, but can receive dividends.
1 Class C share for director 2 - no voting rights, but can receive dividends.
1 Class D share for director 3 - no voting rights, but can receive dividends.

They each earn a salary based on their work. They each receive any dividend paid out from Class A shares equally. As directors, they can then agree any additional divided to be paid for Class B, Class C and Class D shares.

This is the model that a consultancy I know of use - the four founders have equal class A shares to share a common pool, and then use the different classes as a way of paying dividends according to the amount of work / revenue that they produce.

[Techforcer]

Very interesting (and contrasting!) views there guys, thank you very much.

Are there any other approaches they could consider? Obviously they are trying to make it as tax efficient as possible (aren't we all!)

[Jessica@WhiteFieldTax]

I would go with either DirtyDogs approach or Clare's - both work, its personal preference and fine tuning.

Don't be scared of alphabet shares in non MSC situations.

[Techforcer]

1 company
3 directors
1 Class A share with voting rights each
1 Class B share for director 1 - no voting rights, but can receive dividends.
1 Class C share for director 2 - no voting rights, but can receive dividends.
1 Class D share for director 3 - no voting rights, but can receive dividends.

They each earn a salary based on their work. They each receive any dividend paid out from Class A shares equally. As directors, they can then agree any additional divided to be paid for Class B, Class C and Class D shares.

This is the model that a consultancy I know of use - the four founders have equal class A shares to share a common pool, and then use the different classes as a way of paying dividends according to the amount of work / revenue that they produce.

Thinking in more detail... The one thing I'd struggle with, is what their salaries would be

Seeing ass the amount of work each person would do is variable both short term, and long term, setting the salaries could be tricky?

[GazCol]

Thinking in more detail... The one thing I'd struggle with, is what their salaries would be

Seeing ass the amount of work each person would do is variable both short term, and long term, setting the salaries could be tricky?

Why would that be a problem?

Unless I'm missing something really obvious, isn't it in all of their best interests to pay themselves £7,696 (dependent on other sources of income) until April of this year and then £7,904 for the new tax year?

[DirtyDog]

Thinking in more detail... The one thing I'd struggle with, is what their salaries would be

Seeing ass the amount of work each person would do is variable both short term, and long term, setting the salaries could be tricky?

If they cannot agree a basic salary for each of them (which can then be increased via the dividend route), then I'd worry about the whole venture, to be honest.

Alternatively, pay no salary and 100% via dividends.

[Michael@Arleys]

Shareholding

Could you not simply form the company with your mother having say 20% of the shares and the other two parties holding a 40% share each based on the amount work you mentioned they will be doing?

The divs could then be split accordingly

[Techforcer]

Why would that be a problem?

Unless I'm missing something really obvious, isn't it in all of their best interests to pay themselves £7,696 (dependent on other sources of income) until April of this year and then £7,904 for the new tax year?

So, if you've got different people, doing a different number of days work, it doesn't seem quite fair for them all to take the same basic salary?

If one of them only ends up doing 1 day of work a month, but still ends up taking the same monthly salary as one of the others, doing 15 days in the month.... As I say, it doesn't seem quite fair

Could you not simply form the company with your mother having say 20% of the shares and the other two parties holding a 40% share each based on the amount work you mentioned they will be doing?

The divs could then be split accordingly

The problem is, that the split of who is doing how much work won't always stay the same... It could go up or down for each of them, both short term, and over the next few years