Paying employees through an Associate

Paying employees through an Associate

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I am contracting with a client who is thinking about setting up an Associated Company together with their partnership. They are under the impression that there is a tax advantage to paying their employees through the associated company. I know that these schemes existed in the 90's but haven't heard of them since.

Would anyone have any pointers as to whether this is still viable and what the tax advantage may be ?

Would any one who has done this before be interested in pitching for the work ?
Andy Price

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By jamesbailey
19th Dec 2008 10:52

Tax Savings from Service Company
These companies were originally popular with partnerships in the days of Profit Related Pay, but they still have their uses.

Particularly with Gordon's proposed tax rises for high earners, partnerships that expect to be affected can shelter some of their profit by using such an entity, and it also provides an opportunity for some income shifting to lower rate paying spouses, in a way difficult for HMRC to attack even under the draft legislation that is currently languishing on the shelf..

There are some non-tax benefits too - a limited degree of insulation for the partnership from the risks associated with being an employer, though this should not be over-estimated. There are also VAT issues to consider.

Bearing in mind the additional admin costs of running a company, your clients need to have a fairly substantial payroll to make the exercise worthwhile.

Our firm has experience of these entities, and I would be happy to discuss pitching for the work with you.

James Bailey
Tax Partner, Robinson Reed Layton
01872 276116

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By jamesbailey
19th Dec 2008 13:13

IR35 not a problem
IR35 should not be a problem, because the company is supplying staff to the partnership, and is paying the staff as employees. The partners do not supply their own services through the company - though they might decide to pay themselves director's fees of (to pluck a figure entirely at random!) £5,434 per year.

If you would like to continue the discussion, please email me on [email protected], or ring me on 01872 276116

James Bailey

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By User deleted
19th Dec 2008 12:28

To James
James

Would it be likely to have an IR35 issue between the service company and the partnership?

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