Offered shares in new company. LTD or PAYE?

New venture has offered me 5% shareholding. Intention to work FT, not be a director. PAYE?

Didn't find your answer?

Apologies for yet another IR35 type question. 
 

A new venture has offered me to become a founding partner with a 5% stake. I will not sit on the board or be a company director. I will work full time on the business. 
 

As I understand typically I would fall under an 'employee'. However, with my shareholding in the company, could this be viewed alternately? 
 

I am trying to be paid via LTD so I can withdraw as dividends and save on the tax. My shareholding in the company will be via LTD too. 

Replies (14)

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By Cylhia66
13th Apr 2024 06:12

Have you tried the CEST test to establish what your employment status should be? I hope that if you fall under an employee, it doesn't hurt too much :-)

https://www.gov.uk/guidance/check-employment-status-for-tax

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By Matrix
13th Apr 2024 06:37

I personally wouldn’t work full time for a start up and take that kind of risk, regardless of the perceived tax benefits (if it is remuneration it will most likely be taxed as remuneration). Get a robust employment contract and shareholders contract.

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RLI
By lionofludesch
13th Apr 2024 07:57

With a 5% holding, you have virtually no say in what dividends you receive.

Could be nothing.

Work for a salary. If you get a dividend, that's nice.

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Replying to lionofludesch:
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By paul.benny
13th Apr 2024 08:43

lionofludesch wrote:
With a 5% holding, you have virtually no say in what dividends you receive.

Especially if you're not a director. Unless there are alphabet shares and a detailed shareholder agreement, your holding could easily be diluted if company raises more capital.

You might want to check out how other key people are being remunerated. Differences are a sure source of resentment and conflict.

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By Truthsayer
13th Apr 2024 08:21

This needs to be looked at in detail by an accountant, and possibly a solicitor too. We are not in a position to give meaningful advice based on what you have told us.

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By Paul Crowley
13th Apr 2024 12:52

Any tax saving arrangement can be made.
And HMRC can challenge the arrangements if they so desire.

The startup can only pay legal dividends out of profits. Will it have enough profit to pay you in the first month?

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By FactChecker
13th Apr 2024 14:45

Whilst I agree with the 'take care' warnings being raised by everybody, those relate to the offer being made to you (minority shareholding + no seat on the Board = no input to let alone control within the business). It also seems unlikely if they are prepared to give you a 5% shareholding, that they are not offering you lower remuneration than they would have without the shares. Given that these may turn out to be valueless, is that a risk you're prepared to pay for out of current earnings?

BUT the core question you raised doesn't seem to have been addressed so far.
Namely: if you "will work full time on the business", then it's almost inconceivable that you could 'replace' your status of Employee by setting-up your own Limited company to do that work instead.
Leaving aside that your prospective Employer/Co-shareholders might well not be happy with that arrangement, it's hard to see how CEST could be persuaded to return any status other than 'within IR35' - although of course we know nothing about the purpose of the new company trying to entice you on board or what specific skills you would be bringing to them.

There are many other likely 'wrinkles' to be aware of and try to overcome if you are determined on that path ... so professional advice should be sought *before* you sign anything.

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Replying to FactChecker:
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By David Ex
13th Apr 2024 21:08

FactChecker wrote:

It also seems unlikely if they are prepared to give you a 5% shareholding, that they are not offering you lower remuneration than they would have without the shares. Given that these may turn out to be valueless, is that a risk you're prepared to pay for out of current earnings?

My thoughts exactly. Presumably they butter up people with the offer and the uninformed fall for it.

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Replying to David Ex:
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By ukfinancebro11
13th Apr 2024 21:18

David Ex wrote:

FactChecker wrote:

It also seems unlikely if they are prepared to give you a 5% shareholding, that they are not offering you lower remuneration than they would have without the shares. Given that these may turn out to be valueless, is that a risk you're prepared to pay for out of current earnings?

My thoughts exactly. Presumably they butter up people with the offer and the uninformed fall for it.

Appreciate both your concerns. This is an investment company within my niche and the other SHs are of blue-chip background. I am being offered the opportunity to buy shares because of a long-standing relationship with the SHs, and prior contribution to the development of the business. I have independently verified the assets in the company and consider the share purchase a huge bargain - within 6 months, the introduction of debt funding will value them at 15x. They are non-dilutable.

My remuneration is above market standard, so my only risk is the share purchase cost. It is under 0.2x the yearly remuneration. I can probably earn 0.2x more in another role but without the equity upside.

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Replying to ukfinancebro11:
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By FactChecker
13th Apr 2024 21:43

Sounds like you've got your eyes wide open on that aspect (i.e. the new company, opportunity and your contribution) ... so good luck to you.

But, per my earlier post, that only addresses the 'take care' warnings raised by others.
My opinion regarding the core question you raised originally hasn't changed ... in that (based on the limited info provided here) it seems inconceivable that you could 'replace' your status of Employee by setting-up your own Limited company to do that work instead - without falling foul of being 'within IR35'.
So if you are intent on pushing your luck that way, I would certainly seek written, paid for professional advice on your specific contract before signing.

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Replying to FactChecker:
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By ukfinancebro11
13th Apr 2024 21:55

FactChecker wrote:

Sounds like you've got your eyes wide open on that aspect (i.e. the new company, opportunity and your contribution) ... so good luck to you.

But, per my earlier post, that only addresses the 'take care' warnings raised by others.
My opinion regarding the core question you raised originally hasn't changed ... in that (based on the limited info provided here) it seems inconceivable that you could 'replace' your status of Employee by setting-up your own Limited company to do that work instead - without falling foul of being 'within IR35'.
So if you are intent on pushing your luck that way, I would certainly seek written, paid for professional advice on your specific contract before signing.


Definitely, I was going to thank you and respond to that. I also can’t really see a way around it. Professional advice is the way to go.

You did say ‘based on the limited information’… I will be joining as a generalist, being the lead on 2+ work streams. What information could swing things my way?

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Replying to ukfinancebro11:
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By FactChecker
13th Apr 2024 23:20

Sorry ... too broad a topic for anything useful generically that wouldn't risk you taking an incomplete and overly-optimistic favourable conclusion from it.

There's nothing to stop you researching the general topic (although be warned the general GOV.UK 'public guidance' pages are simplified and unreliable - so you really need HMRC manuals for an insight to how they approach it + the legislation of course + some of the more recent court cases for current interpretation).
Which is why an expert, who can focus on the minutiae of your circumstances, is more likely to give you relevant advice (and you can always sue them if it goes wrong subsequently)!

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By tom123
15th Apr 2024 14:38

It is perfectly permissible to offer shares to key employees in order to get them to "buy in" to the success of the business.

Don't give up your employment rights for jam tomorrow - that may not ever arrive.

With salary, through PAYE, that money is definitely yours.

Why don't they want to offer PAYE - that would be my question?

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Replying to tom123:
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By FactChecker
15th Apr 2024 17:55

Presume that question's rhetorical?
But still worth asking ... basic lack of liabilities for them (from paid holiday, working hours, sickness and other benefits, potential eventual redundancy - all the way to simple savings like ER NICs and AE pension contribs).

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