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separate company to employ staff

separate company to employ staff

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I have a client who employs around 50 staff.

They are considering setting up a new company purely to employ the staff (who will leave the existing company and start a new employment with the new one).

The new company will then charge the the existing company for the staff costs plus a modest mark up.

I am aware that employees rights will transfer into the new company.

Can you tell me (1) whether this is a viable thing to do and (2) what pitfalls to be aware off.

Many thanks for your help.

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19th Nov 2013 12:34

.

What is the motivation in the first place?

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19th Nov 2013 12:40

Yes it's viable, and there are no particular pitfalls apart from the increase in administration and compliance costs, but what is the point?

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By DJKL
19th Nov 2013 12:47

Thoughts re this:

1. Presume newco will be vat registered and will charge vat on salaries, or there will be a group registration?

2. Presume oldco can fully reclaim all vat, it is not partially exempt?

3. Presume third party/ public/ employers insurance will be robust between the companies, no incidents can slip between the parties re responsibility/duty of care etc

4. If I were a current employee of oldco, and I had a contract that made a generous payment in the event of termination of employment/ death, I would not be that happy having my employment transferred to a newco unless the oldco gave a written guarantee that it would underwrite performance. It is all very well newco transferring all contracts but does it have the asset backing to meet its obligations? (edit- would more so apply with pension obligations if defined benefit scheme)

5. Associated company rules for CT rates will apply, may increase CT bill.

6.Is it a group structure, if not then losses offset could be a future issue.

7.With 50 employees presume there are a fair number of legal hoops to jump through regarding the transfer e.g.the business justification for the transfer, staff/union consultation etc- all outwith my area of expertise but presume client is taking legal advice?

8. Presume no overseas aspects that might fall foul of transfer pricing regulations?

 

Above are my initial, off the cuff, thoughts.

 

DJKL

 

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19th Nov 2013 12:50

It's a service company

As such it is not particularly unusual - partnerships often use them to limit liability, property obligations are often put in them as well.

A reasonable profit loading should be unexceptional but note carefully the VAT points made above, and some degree of protection which might be necessary if the service company gets into financial difficulties although this should be unlikely.

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19th Nov 2013 16:49

thanks

Many thanks for your answers - confirms my thought exactly

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By RJH_FC
23rd Oct 2017 16:43

Would you be able to comment on if this went ahead and if so how it went? In particular did HMRC have any objections?

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