New Business - Legal Structure & To Employ or Not Employ?

Drag-Den

Hi,

Myself and a friend are looking to set up a business which basically provides skilled people who provide a service to individuals. Now we believe we have a USP in a potential tie up which would add a lot of credibility to the company however we are struggling with the whole legal structure & employment law area. Basically what we would like advise on is:

* Would it be better to act as a Sole Trader where the people we supply are classed as self employed and responsible for their own tax returns etc...

*Alternatively if we went down the Private Limited Company Route or Limited Liability Partnership route and classed the people we supply as employees then what would we need to do in terms of tax, ni and other legal requirements(holidays,sickness...)?

Whilst on the face of it operating as a sole trader and not actually "employing" anyone sounds the obvious answer the nature of our prospective business means we may then have to ask our "people" to collect fee's from clients and then pass on a cut to us. How realistic is this??

Alternatively is there a way of us collecting our fee's and then "paying" our people but writing into a contract that they are responsible for declaring their earnings to the taxman and paying the tax???

I hope this makes sense, or if not that someone out their has the experience to make sense of it! You can probably tell that we are a little confused so any advice would be really appreciated! ;-)

LittleVoice

A sole trader is just that - someone who trades.
Two people (you and your friend) cannot be a sole trader - that's one person too many.

"Sole" in this case does not mean you can't have employees. If you employ people they receive wages/salaries, whereas you receive the profits from the business.

The two of you in partnership would share the profits and obviously any employees would be paid a wage/salary. If you go down the partnership route, you should get a properly drawn up partnership agreement. (It's not a legal requirement but highly recommended.)

Whether you take the partnership or limited company route has no bearing on the way you operate as far as whether the people providing the services you mention are employed or self-employed. Without further information about the type and location of the service, it is difficult to advise further on that point.

It does sound as though you would be acting as some kind of agency. You can be required to deduct tax and NI (and pay employers NI) even though people are employed on a contract for services rather than a contract of service. If they are truly self-employed, then you should get them to advise you of their tax reference.