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A owns X Ltd, and A provides services to Y Ltd

Cross charging: A owns X Ltd (100%), and A/X provides services to Y Ltd (which A owns 30%)

A owns X Ltd (100% - and is also a Director)
A provides services to Y Ltd (which A owns 30% - and is also a Director)
X Ltd has other significant turnover not related to Y Ltd.

In principle I don't see an issue with A billing Y Ltd from X Ltd - ie. fee invoice only.
Higher rate aside for a moment, nor would there be a problem with A being only salaried at Y Ltd - especially as NI starts again.

The question is, is there in priciple anything legally applying if A 'bills' Y Ltd with a combination of salary and fee from X Ltd., given that tax strategy would be a part of this reasoning?

 

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11th Jan 2019 19:29

Who or what is providing the service to Y - A or X? Or both?Whichever entity is servicing Y needs to bill Y. If both then be clear on the billing and on recognising the income as either income of A or X. A cannot bill Y for salary for those services provided by X, although there is nothing stopping A being remunerated by Y for his role as director - difficult to see how this could involve X. A certainly cannot bill Y for services provided by X.

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11th Jan 2019 20:38

Thanks, and I apprieciate the distinction, but in a service supply, where A can receive a salary from Y say for tax services, and X can also bill Y for other tax services where it is A actually doing the work, is there a clear 'can' or 'cannot'?

Not that it would happen this way, but A could receive a salary for A's services to Y this week, and X could invoice Y for A's work for Y next week (and please don't drag IR35 into this).

(the service isn't tax or accounting BTW - but it helps define the issue)

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11th Jan 2019 20:41

As Tim Vane suggests, why would a company X invoice for services it hasn't provided, and why would company Y pay an invoice from a company which has provided it with no service?

Which of A, X and Y are parties to the contract for provision of services? Your answer should lie there.

Which (if any) of the parties is/are VAT registered?

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12th Jan 2019 10:12

VAT splitting aside ...
And at no point did I say no service was provided ...

I did actually say that "X could invoice Y for A's work for Y", ie. like any ltd co bills another business for an employee's services.

So this is A doing the work on Y's premises for Y. So could be salaried (normal), or invoiced through X Ltd (normal), or a combination, which I am questioning the legitimacy.

So, as A is a Director or Y, could A be salaried for generally being a Director, and still invoice Y from X for specific specialist skilled services?

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to Gone Sailing
12th Jan 2019 12:09

Gone Sailing wrote:

So this is A doing the work on Y's premises for Y. So could be salaried (normal), or invoiced through X Ltd (normal), or a combination, which I am questioning the legitimacy.

I asked what the contract said.

Either A is doing the work as an employed or self-employed individual or X Ltd is engaged to provide a service which its director/employee (A) delivers.

Presumably, before the work commences, Y Ltd enters into an agreement with A as an individual or with X Ltd as a company. It would not be normal business practice to decide after the event. There are tax and liability insurance issues for a start.

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12th Jan 2019 13:09

There are no contracts.
This is planning a new venture, not historic.
There is no self-employment.

Why does it have to be either/or? Where is the law on that?

Why can't A's "type 1 work" for Y, be as an employ of Y, and A's "type 2 services" to Y be as an employee of X and billed from X to Y?

Tax law is absolutley an issue as expressed in the original question.

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to Gone Sailing
12th Jan 2019 14:07

Gone Sailing wrote:

There are no contracts.

There's always a contract. It may be verbal rather than in writing but there's a contract.

It can be either/or. What it can't be is either/or after the event.

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to Accountant A
12th Jan 2019 14:19

Accountant A wrote:

There's always a contract. It may be verbal rather than in writing but there's a contract.

Not if a 'director only' business is intending not to register with the Pensions Regulator.

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to Accountant A
12th Jan 2019 18:50

Accountant A wrote:

There's always a contract. It may be verbal rather than in writing but there's a contract.

It can be either/or. What it can't be is either/or after the event.

With all due respect, A, we're very quick to say to folk "Ah - if only you'd gone to an accountant and planned ahead".

Yet here's Gone Sailing, planning ahead and you're saying he can't because there must already be a contract.

Ptovided this is about a future service, I think the query is perfectly valid.

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By Matrix
12th Jan 2019 14:32

Director's remuneration should in the first instance be subject to PAYE. If the services to Y will be split between remuneration for sitting on the board and other services, for example, professional services, then this should be documented in a contract to distinguish between the services provided. If the Director regularly provides these services through X which has other clients then X can invoice Y for these services as set out in the contract.

However as you allude to earlier, you would then have to address the IR35 implications.

You also need to look at the wider picture, you don't say who owns the other 70% or who are the other Directors, maybe the decision will be out of your client's control.

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12th Jan 2019 15:16

Thanks @ Martrix

Therefore, for the original question, on the basis that, in principle, HMRC will have no objections, contracts would define the arrangements.

Whilst tax strategy is an issue for A, the owners of Y are also devising the best strategy for their "pay", and the issues do overlap.

Taking advantage of NI starting again for A if employed by Y, say a salary of £8k, this is more tax efficient than billing from X and then taking dividend from X (no CT relief), albeit it's Y getting the CT relief.

Then A's potential higher rate can be monitored and controlled in X by billing for services, X to Y, rather than a higher salary in Y (Employment Allowance aside).

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12th Jan 2019 15:34

@ Matrix, multiple thanks, just the sort of obscure stuff I suspected was lurking out there.

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12th Jan 2019 19:57

Jackpot:

"It is perfectly possible for an employee or a director of a company to provide services quite legitimately to that company in a separate capacity":
https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm4022

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to Gone Sailing
13th Jan 2019 00:36

Your director is a director of both companies. His/her employment status is hardly in question. It's unlikely that anything in the ESM is relevant, let alone the jackpot. What answer do you think that link provides that has got you so excited?

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to Tax Dragon
13th Jan 2019 09:32

Because it was bothering me, was an unfamiliar scenario, and the question was answered and cited. The general thread helped unravel my thoughts, which I hope is what Aweb is for.

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to Gone Sailing
13th Jan 2019 16:25

You still seem to have A and X Ltd entwined in your mind. That was the loose end I was gently tweaking.

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to Tax Dragon
13th Jan 2019 16:41

Gentle tweaks welcomed.
The whole point was that I was actually trying to separate A and X, for tax reasons inter alia, but was not sure footed when HMRC, in other scenarious, are fond of 'connecting' and removing false arrangements if they smell avoidance, and quite rightly.
So I have separated them (I think), thanks.
(further comment re VAT)

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to Gone Sailing
13th Jan 2019 18:03

I see why you say that - and we are slightly at cross purposes. So let's step back.

The link said, in short, that a self-employed consultant can be a director of a client. I don't see how that's relevant to your case: you have not mentioned a self-employment.

Suppose X Ltd provides consultancy services to Y Ltd. Can A, a director of X Ltd, also be a director of Y Ltd?

I thought that was your question. I haven't seen it answered in this thread. If you think it has been, one of us has missed, or misread, something.

Were I (advising) Y Ltd, I'd want some pretty robust contracts in place. I hope they - and you - are not doing this without taking good legal advice. It won't be long before the IR35 buck passes to Y Ltd too.

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to Tax Dragon
13th Jan 2019 19:37

To be fair it says "in a separate capacity", not " self-employed". Although the latter could be inferred, it is not stated.

I know X can be a director of both.

My question was whether A could be salaried as a director of Y for one service to Y, and at the same time X could bill Y for a further service where A is 'boots on the ground' at Y by virtue of A's employment a X.

I am satisfied this is ok.

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13th Jan 2019 16:52

VAT splitting is also an issue because some services of X and Y are similar.

A is not connected to the owners of Y.

I was contemplating using the 'non-statutory clearance service' but in the end it's probably better to register X and Y because the customers are registered.

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