Should I remain a sole trader or set up a partnership?

smellyjim69

Hi all, hoping for some help here. Basically, I'm a self employed tradesman, set up in 2015 and done surprisingly well. My brother in law has come home from Australia with a decent sum of money in the bank but no job/prospects and in an effort to help him out, mentioned him working with me. Anyway, it's all a bit out of hand now. We are best mates aswell as brother in laws and i trust him totally. He hasn't got much of his lump sum left but has paid for courses etc to qualify as well as his own kit and PPE.
How can he work with me but not for me? I'm not in a position to employ him and he's not in a position to buy a share of my sole trader company. Could I technically give him an amount, say 1% of the business for free and then pay him for work carried out thus leaving him liable for his own tax and NI etc? I know at year end, he would be entitled to 1% profit, but I'm never gonna have that much profit so at best it'll be a few hundred quid which would be a late Xmas bonus for him. I cannot afford to pay annual leave, sick pay and everything else associated with being an employer but I can give him a decent, fairly regular wage. He would of course be welcome to work alone too as he has his tickets and his own PPE especially as I have one sub contract which will not extend to him. He knows the score in terms of 'not always getting work' and he's ok with it, I'm after advice on the legal repercussions and tax info.
Thanks in advance.

Owain_Moneysaver

Easiest thing is to employ him (and get him covered by your employer's liability insurance) but not pay him. There's an exemption in Minimum Wage legislation for family members.

If he is working for you then HMRC may decide that he is your employee (and can pursue you later for uncollected tax and NI).

If you can't afford to factor in annual leave and sick pay then I don't see how you can afford to pay a 'decent fairly regular' wage.

If he becomes a partner then he becomes a joint owner of the business as well as being jointly and severally liable for the debts of the partnership. And if my memories of the Partnership Act 188something are right, without a formal partnership agreement he'd be entitled to equal share of the profit, regardless of his % of ownership.

smellyjim69

Owain_Moneysaver wrote: »

Easiest thing is to employ him (and get him covered by your employer's liability insurance) but not pay him. There's an exemption in Minimum Wage legislation for family members.

If he is working for you then HMRC may decide that he is your employee (and can pursue you later for uncollected tax and NI).

If you can't afford to factor in annual leave and sick pay then I don't see how you can afford to pay a 'decent fairly regular' wage.

If he becomes a partner then he becomes a joint owner of the business as well as being jointly and severally liable for the debts of the partnership. And if my memories of the Partnership Act 188something are right, without a formal partnership agreement he'd be entitled to equal share of the profit, regardless of his % of ownership.

Thanks for the reply.

The minimum wage thing doesn't apply here as he doesn't reside in the same house. He earns a flat daily rate which is generous, he has no experience at all and with an agency he would earn at least £20 less per day. I also have employers liability as I foresaw I may need to subcontract at times.
I'm in the tree surgery business so it's a case of twice the hands, half the work, and I'm obviously hoping that with him on board, we will double the work load. However, this is a hope not a certainty and as such I'm hesitant to commit to an annual salary/annual leave etc when I don't even get holiday pay myself. If I don't work, I don't get paid. If a nice big job comes in, landscaping, I can pay him a good wage but I cannot pay him on the smaller half a day jobs. If lose my house if I did.

I was thinking he could set up his own business and I could then enter into a partnership with his business, albeit a very small minority partnership. However I've slogged out a reputation and tbh he's going to need a lot of training. Plus it's all my equipment. I'd really like to help him to sort his future out but not at the detriment of my business/family/finances.

If a proper contract was drawn up (or ultimately, I trust him, so we agree to his 1% profit share) could we then proceed down this route and be individually responsible for tax returns etc and neither of us get the bonuses of employment? Equally, we get the bonuses of self employment is good weeks, flexibility etc.