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Director & minority’s shareholder

Invoicing co for services

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There’s lots of threads such as https://www.accountingweb.co.uk/any-answers/director-invoicing-own-company when the director in question is sole shareholder.

My scenario is slightly different and one that I can’t find an answer on anywhere...

My client (Mr A) will be MD of newco, a JV. He will be 25% shareholder, with the silent partner (ltd) holding the remaining 75%. I’m unsure as to whether the silent partner will have a representative director or not. It’s something we have the ability to insist upon if required. Mr A also has an industry specific consultancy company (B) with multiple clients. Newco and B are in the same industry.

A’s remit is to run newco for a fee (obviously). The question is, can he invoice from B? I would like to argue that he receive a nominal salary for being a director (maybe one of 2 directors,  which I guess may strengthen the argument, especially is director 2 is on the same salary?), say £500pcm, and invoice the remainder from B for consultancy services, with a consultancy  contract. 

What do you think?

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13th Jun 2019 09:10

Who are the directors at Companies House of Newco is Mr A (you mention managing director) one of them and is the silent partner any connection to Mr A?

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to lesley.barnes
13th Jun 2019 09:24

Mr A will be a director. A representative of (let's call it) 'Silent Partner Ltd' will probably also be a director.

There is no connection other than that a current customer/supplier relationship between Mr A's consultancy company (B) and Silent Partner Ltd. When the JV starts, this relationship will end and Silent Partner Ltd will become a customer of Newco instead of B.

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13th Jun 2019 10:07

I've got to ask - What is the benefit to Mr A in setting up the joint venture with Silent Partner when the money he received from Silent Partner is being put through Newco rather than paid directly to Mr A?

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to lesley.barnes
13th Jun 2019 10:19

SP won't be the only client of newco. Mr A's income from newco will be greater that he currently charges SP. The belief is that newco will grow rapidly, Mr A has an exit plan of 2-3 years with a newco valuation of £3m.

B Ltd will soon have investments in a number of 100% or 50% subsids, but Mr A will hold the shares in this newco personally to attract ER on disposal.

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By Maslins
13th Jun 2019 10:09

Given it sounds like Mr A will be a director of Newco, doesn't that mean if he does work via a PSC for Newco it would automatically be inside IR35? Wouldn't stop him doing it, but if a primary reason to take the low salary and get a bigger chunk as a consultancy fee is for tax reasons he may struggle.

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to Maslins
13th Jun 2019 10:22

Maslins wrote:

Given it sounds like Mr A will be a director of Newco, doesn't that mean if he does work via a PSC for Newco it would automatically be inside IR35?

I didn't realise that that was the case?
B will also become a holding company for a number of 100% & 50% owned subsids (as well as his PSC, Mr A's vehicle for investing in new ideas). Does that make a difference to your anser?

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By Maslins
to atleastisoundknowledgable...
13th Jun 2019 10:34

https://www.qdoscontractor.com/ir35/office-holders
Found the above link which hopefully helps a bit.

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to Maslins
13th Jun 2019 10:57

Maslins wrote:

https://www.qdoscontractor.com/ir35/office-holders
Found the above link which hopefully helps a bit.

Thank you. This stops dead my plan and multiple prior threads on here.

I have another scenario, which I think that you'll say is caught, but I'd like your opinion on anyway:

Mr R has a PSC (S Ltd). Historically he's had interim CEO/MD roles, but is now going for more NED stuff. He is also looking to run training courses. Mr R has an (unrelated) contact Mrs X, who has a PSC (Y Ltd) Y does consultancy (multiple clients) and overs training courses.
There is a discussion for R & X to create a newco JV Ltd. It's the same situation for both, so I'll make the narrative simple by just using one ... R will be a director. 50% shareholder will either be R or S Ltd. JV will organise training courses, some of which be run (i.e as lecturer) by R. S Ltd will invoice JV for a day rate for presenting the course.

As per your link, does this mean that S Ltd can't invoice / will be caught by IR35? Even through there is a distinctive separation of roles? Does it make a difference if there are 3rd party presenters who get paid a day rate?

Many thanks Maslins.

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to atleastisoundknowledgable...
13th Jun 2019 11:18

As I understand it, the dual role of director and worker that makes it hard to be outside IR35. If Mr R receives remuneration commensurate with his duties running the company, and separately bills via S Ltd for his lecturing, he *might* be able to keep the lecturing outside IR35.

S Ltd and R would need to ensure that all of the other indicators of not being an employee are present (eg ability to substitute another person). Even then, it might not succeed. It may be that it's not worth the effort and risk for what is presumably a relatively small saving (given that this is not R's only occupation)

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to paul.benny
13th Jun 2019 11:31

Thanks Paul.

This is where my mindset was - we can do our best but it's still a risk.

I know that the client is willing to take that risk, but as always will provide my advice in writing ...

Thanks

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13th Jun 2019 11:48

(looking at the original scenario of Mr A as director / minority shareholder)

What do people think about a package looking something like:
- Directors salary (paid via PAYE to Mr A)
- Ordinary shares (owned by Mr A, under EMI or similar, one eye on ER)
- Preference shares (owned by the PSC, B Ltd) paying the balance between Mr A's agreed fee and the salary.

Fixed preference share payouts wouldn't be caught under IR35 would they? I know that I need to read-up a bit more on the different types of preference share. The other issue is I guess the value of the preference share payout, which would end up being significantly higher than normal (£000s pcm for very few shares) - the only ones I've seen in the past were <2% bearing.

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to atleastisoundknowledgable...
13th Jun 2019 12:52

I wouldn't like to say that would (or wouldn't) work but it *looks* highly contrived.

The reality appears to be that Mr A will be working in the business and as we all know, it's increasingly difficult to take workers outside PAYE. Whilst ability to substitute isn't the only criterion, it seems clear that he is there because of his personal skill and knowledge - and therefore there is no real option to substitute.

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to paul.benny
13th Jun 2019 13:07

paul.benny wrote:

I wouldn't like to say that would (or wouldn't) work but it *looks* highly contrived.

The reality appears to be that Mr A will be working in the business and as we all know, it's increasingly difficult to take workers outside PAYE. Whilst ability to substitute isn't the only criterion, it seems clear that he is there because of his personal skill and knowledge - and therefore there is no real option to substitute.

This is all entirely true. I thought that I was probably pulls are very thin straws.

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