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    • looknohands
    • By looknohands 11th Oct 16, 3:20 PM
    • 378Posts
    • 163Thanks
    Soletrader & Business Director same time
    • #1
    • 11th Oct 16, 3:20 PM
    Soletrader & Business Director same time 11th Oct 16 at 3:20 PM
    I'm looking to setup a 50:50 share in a company,

    We are in the planning stages so the following is a very loose idea of how we see it moving forward. Overall am just wondering if I can have a sole-trader business and a limited company at the same time?

    Me and the business partner have collaborated on one project before and we are using this single project as a base to market our company and obtain more work, this one project was conducted as my sole-trader business, on this project I was introduced to the potential partner, we own all aspects of the work we are marketing.

    However I don't want to move all my clients to this company, but need to retain them.
    For a few reasons.

    - The partner currently has work he'd keep alongside the company whilst we search for leads, so I would like to maintain my ST income to support me whilst we grow the new client base and also keep my income if the business didn't pick up any leads.

    - We would both be spending 16 hours a week on the business per week initially (4 hours per night for 4 days), at first chasing leads, then completing work under the business name, aiming to complete one project per month until 3 months (or we are overwhelmed with work), at which point we will review the position and decide if it's worth going all in.

    The rest of the week I would spend working on my soletrader business and I wouldn't want to share that revenue with the partner as he is working also. Even if we could figure out a way that i am paid for my project work it seems like it would be a hell of a lot of admin for me to then draw my money out of the company?

    - The new business would be charging higher fees than my current work, the quality of work is better due to the new business partners skill set, so the margins would be very different if I ran my current work through the business. Currently my sole-trader business produces Part A & Part B of each project. The new partnership would involve business partner producing Part A to a higher standard and me producing Part B.

    One issue might be that one day I could approach old clients from ST business once we have established the business success, so I would transfer customers eventually, Business Partner is aware of this and we have agreed a commission on leads.

    Is it possible to have the two running side by side?
    Last edited by looknohands; 21-10-2016 at 4:20 PM.
Page 1
    • Pennywise
    • By Pennywise 11th Oct 16, 3:41 PM
    • 9,981 Posts
    • 18,457 Thanks
    • #2
    • 11th Oct 16, 3:41 PM
    • #2
    • 11th Oct 16, 3:41 PM
    Is it possible to have the two running side by side?
    Originally posted by looknohands
    Yes, but a couple of issues to start with.

    Firstly, be wary of VAT. If HMRC get the slightest whiff that you are benefitting in terms of either not registering for VAT (i.e. splitting turnover over 2 businesses to avoid triggering the registration threshold), or putting VATable expenses through either business if it's VAT registered, they'll be over you like a rash, especially if both businesses are similar trades.

    Secondly, a more practical problem in that you need to be mindful of claiming the right expenses through each business which can cause you a few book-keeping headaches. For example, if you use the same mobile phone, computer, broadband connection, van, tools, equipment, etc., you have to devise some way of claiming the relative usage of each through each business. Ie if you claim all your broadband through your sole trader business but use it half of the time for the new company, HMRC would be right if they decided to disallow half the costs you'd claimed and land you with a bill for extra tax and penalties!
    • scoly
    • By scoly 11th Oct 16, 8:27 PM
    • 70 Posts
    • 28 Thanks
    • #3
    • 11th Oct 16, 8:27 PM
    • #3
    • 11th Oct 16, 8:27 PM
    I agree with Pennywise

    Some other things to (re-)consider:

    a) Make sure you have a clear agreement as to where future work will go. If it's all to go through the limited co, (or all new clinets to go through limitd co) then no problems, otherwise there could be a postential conflict of interest unless it's all clearly laid out in an agreement.

    b) re the 50:50 set up, that is generally advised against. The problem is you could easily fall into stalemate situation on anything or everything when its 50:50 ; consider 49:51 and then someone will have overall control and can have the casting vote where no agreement can be reached (or put another way, one party could railroad the other into decisions they don't wish to accept)

    You should seek expert advice on these issues first.
    • looknohands
    • By looknohands 17th Oct 16, 1:18 PM
    • 378 Posts
    • 163 Thanks
    • #4
    • 17th Oct 16, 1:18 PM
    • #4
    • 17th Oct 16, 1:18 PM
    If both ST & LTD businesses were registered for regular VAT (not flat-rate) would this be an issue? HMRC are receiving 20% regardless of where the work went. All our clients are businesses so claim VAT back we charge, doesn't effect our revenue.

    All equipment and premises would be expenses of each respective ST company. We would be out-sourcing the work to our ST businesses, both ST businesses doing the work for free but the LTD is taking revenue from clients, we are not taking any money out of the Limited until we see enough of a return to cease trading as STs, at which point we'd take salaries and we'd put all expenses through the LTD. This would avoid any VAT expense issues.
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