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Splitting Employment between two business - National Insurance Implications

Hi All,

I wonder if you might be able to help.

I am an Accountant, but this is not something that comes up often.

I am involved with a manufactring company, and we are looking to purchase another company.

It does similar things, and would be housed within the same premises.

There would be a separate phone line to the business, separate website, and would continue to be a separate business. It would pay a share of the rent, electric and gas etc. The business has a good brand and has a retail arm, which is the reason we want to keep the business separate.

The business requires employees, and the current employees of the business would not continue - for various reasons, including wanting to retire, too far to travel etc. So there are obviously redundancy and various other problems etc when taking over the business, however my question is regarding ongoing National Insurance.

We currently have the staffing capacity to run both businesses, and would like to split the cost of three of our employees (we have 7, not including the directors).

These employees would be the ones involved with the work of that business, but it would not require all of their time.

One is admin, one is required for running the machines (specific to that business) and one is required for finishing and packaging. The other is in admin - answering the phone for the business, preparing orders, dealing with customer orders, invoicing and bookkeeping etc.

The split, while not 100% accurate, would be done realistically, so each business' cost reflects its actual cost.

The businesses are owned by the same shareholders (although not in exactly the same proportion), and run by the same three directors.

As you can see, there are valid business reasons for the split, however I also realise that there would be national insurance savings for both us and the employees involved, and so I wonder if this is prohibited somewhere, or whether it is ok since there are valid business reasons.

I would be very grateful for any help you could provide, because I don't want to open ourselves up to problems.

All the best.

David

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30th Apr 2012 09:47

Aggregation of earnings

Have  a look at NIM10004 here http://www.hmrc.gov.uk/manuals/nimmanual/nim10004.htm  which might help.

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30th Apr 2012 09:52

Association

It looks as though the two businesses could be viewed as being associated with each other under the NI rules, so that the Aggregation of earnings rules apply.  For the sake of simplicity I would recommend leaving the staff payroll wherever they are paid now and making intercompany charges for the time spent on the other's business.

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30th Apr 2012 10:42

I agree with Paula

You would be better suited to keep the employees in Co1 and charge the appropriate costs across to Co2 on a monthly basis. If nothing else it reduces the need to run two payrolls for such a small number of staff.   

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By neileg
30th Apr 2012 11:48

and...

As has been pointed out, this arrangement is likely to be caught by the aggregation provisions. On top of this, it would be a serious weakening of the staff employment rights since they could have one contract terminated leaving them as part timers. As an employee, I wouldn’t sign up to this.

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