Limited company for our hobby shops

Tezap

Hello,

My partner and I each have online hobby shops with the revenue now likely to exceed our £1k trading allowances this tax year. We are also PAYE employed where I earn enough that I need to make extra pension contributions to avoid higher rate tax and child benefit payback and my partner is roughly in the middle of basic rate tax. We were thinking of forming a limited company to cover both shops (different type of inventory, different sales platforms but shared mail order postage & packaging operation) and from what I read it's important to form it correctly at the start as there can be implications to changing it later.

Ideally I would like to be a joint controlling director with no ownership or income from the company. However I would be doing work for the company so I believe HMRC would expect me to be paid (even if a director?) even if I don't want to be.

Am I right in thinking it would be unacceptable to form the company with my partner as sole shareholder and joint director? That way she would be able to take all the profits as either director pension contributions (would it be acceptable for only one director to get this? and are there any limits to the percentage of profit that can be allocated?) and/or dividends after corp tax within her annual allowance. Any extra profit would be built up as additional inventory in the company.

Thanks you in advance.

Tezap

Pennywise

Tezap said:

Ideally I would like to be a joint controlling director with no ownership or income from the company. However I would be doing work for the company so I believe HMRC would expect me to be paid (even if a director?) even if I don't want to be.

Nope.  No requirement to be paid either wages nor dividends (unless you're caught by IR35 which only applies to freelancers selling their time).  If you both work in the business, then you can both agree who gets wages, dividends, etc.  There "may" be an issue if, say, you did all the work but your partner got all the wages/dividends, as that looks like deliberate tax avoidance, but as long as you both input into the business, then it really is a matter for the two of you to decide who/how payments are made between you.  The only issue is dividends - which have to be paid in proportion to shareholdings, so if you each hold half the shares, then dividends must be paid equally - the way around that is something called alphabet shares, i.e. you hold A shares, you partner holds B shares, and you vote dividends to B shares only, but it gets complicated and there are some pitfalls and tax traps so best to get a good accountant to advise if you were going down that route,

Tezap

Pennywise said:

There "may" be an issue if, say, you did all the work but your partner got all the wages/dividends, as that looks like deliberate tax avoidance, but as long as you both input into the business, then it really is a matter for the two of you to decide who/how payments are made between you.

Thanks, I would be doing around 50% of the work but wouldn't want any income, dividends or pension contributions from the company as it would be inefficient on my annual tax position and my workplace pension might already have lifetime allowance problems. I considered using alphabet shares but understand HMRC see this as a red flag for further investigation. Would it be allowed to just have my partner as sole shareholder and director and then I would be just 'gifting my time' to the company? That might also address some of the imbalance in our accumulated assets. Or maybe just joint directors/shareholders and let the money accumulate to retire early?

sliphi

As Pennywise correctly says, there is no requirement for a director of a limited company to be paid. There are loads of company directors who are not paid. HMRC do not get involved.

Similarly, lots of people do voluntary work for others. Again HMRC do not get involved.

Jean_Hastie

My daughter has her own shop and would like me to give up my current job and to work with her. How do I go about paying my own National Insurance and PAYE. What is best? Going in as self employed or as an employee.

J_B

Jean_Hastie said:

My daughter has her own shop and would like me to give up my current job and to work with her. How do I go about paying my own National Insurance and PAYE. What is best? Going in as self employed or as an employee.

If you only work for one person, then 'legally' you should be on PAYE with her