Working for an Agency via a Ltd Company - The Book-keepers Forum (UK)

ChrisBolton · Senior Member

Working for an Agency via a Ltd Company

Shamus · Forum Moderator & Expert

Hi Chris,

A very good question.

I use the same business form and it's my company that's registered with the ICB for money laundering purposes but when I switch over to the IAB when my current practicing license expires then they cover the individual, not the company.

With HMRC you will need to pay £120 for each premises that you use even if such premises are your home address and a further £50 for the fit and proper test on yourself.

There has been some debate on here as to whether or not the fit and proper test is applicable to bookkeepers. It's my belief that if you are not attached to a supervisory body then it is but some others have different views.

The web page to check out the fit and proper test is

http://www.hmrc.gov.uk/mlr/getstarted/register/fit-and-proper-test.htm

The web page for general MLR info is :

http://www.hmrc.gov.uk/mlr/getstarted/register/how.htm#5

Hope that this helps,

Shaun.

ChrisBolton · Senior Member

I am AAT qualified, although I am currently a "normal" employee with a 3rd party.

I was thinking along the lines that as I am invoicing the Agency, not the "paying" company, it would be up to the agency to carry out the tests etc. Surely if I was employed by the agency under PAYE, I wouldnt have to register, just as I dont have to now?

Shamus · Forum Moderator & Expert

Sorry, you've confused me (not difficult!).

My understanding of your original question was :

1) You've set up a limited company.

2) You are director and sole employee (at present) of that company.

3) Your limited company is finding work through an agency.

Assuming that I understand this correctly then the responsibility remains with your limited company, not the agency for MLR.

The agency surely is merely introducing you to clients and it is up to you to perform your own checks to determine whether or not (a) you accept that work, and (b) once accepted whether you are put in a position to report on your clients activities.

The closest approximation to this work model that I can think of is sub contracting of work.

Note that even as a bookkeeper you can fall foul of the IR35 legislation. This arrangement seems to have all of the hallmarks of deemed employment where the agency is attempting to avoid employee liabilities by having you use the limited company approach.

ChrisBolton · Senior Member

Me and my wife set up the company (she isnt a bookkeeper/accountant), and are both equal shareholders/directors.

I am looking to carryout work for Hays, invoicing Hays as oppose to the end user. This would be on temporary contracts ie maternity cover etc.

Also, in respect of IR35, wouldnt the onus be on Hays to carry out the necessary checks, as they are the contractor?

Shamus · Forum Moderator & Expert

Hays are an agency, you are the contractor.

Think of this another way.

It is you, not Hays that has to provide Public Liability and Professional indemnity insurance. Would those not suffer from the same argument as MLR?

I've worked through Hayes on a contract basis. Decent agency, always pay the last invoice without issue, been around for a long time. Think that you'll be alright with them.

Knowing agency contracts of old I'm sure that you'll actually find everything that you need within the contract (have you got a copy yet?).

Generally requires you to have £2m of insurance in place although this may be different if you're never going to set foot on the client site or use their computer system.

I know that you are the only one working in the company but they will expect you to have :

Professional Indemnity
Employers Liability
Public Liability

Direct line are quite reasonable for the last two and as your a member of the AAT you may be able to get one of the Trafalgar bookkeeper deals specific to your supervisory body... Don't quote me on that though as you may need to have a practicing certificate in order to get the insurance through them.

If you can't get it cheaply through Trafalgar then both Hiscox & Morethan are pretty decent companies.

Right, back to IR35. It is not down to the agency whether you are covered by IR35 or not, such is between yourself and HMRC.

Also HMRC are wise to the tax situation where only one person in the company works but both are related parties and draw a wage. Be careful and ensure that you know all of the tax facts before thinking about paying your wife a salary for only being company secretary in name.

I assume that you've gone down the limited company route as Hayes wouldn't touch you as a sole trader? You get that a lot with IT contractors who are only allowed to work through agencies either via their own limited company or via an umbrella organisation and then the government come down on them saying that they are attempting to avoid tax where the reality is that they didn't actually have any choice in the matter.

Right, few more things in there for you to think about.

semsley · Guru

Speaking from experience although from the 1980s (pre IR35). My husband and I had a limited company through which he worked for agencies (he was a contract structural engineer) I did book-keeping and office admin stuff. He didn't need Liability or Prof Indemnity Insurance as he was covered via the agency stated in their contract with the company. The agency wanted Ltd company because it saved them paying employers' ni and they paid the contractor a higher rate per hour.

Anyway we had an investigation from HMRC who tried to claim that I was being paid because I was his wife. I proved that I was bringing money in to the company by my invoices to customers etc (in fact at one point there was only me bringing money in, due to recession and hubby being out of work for 3 months), eventually after well over a year the case was dropped and instead of us owing them thousands they sent us a refund.

Shamus · Forum Moderator & Expert

hi Sheila,

I've not been around much for a couple of weeks so not had much chance to catch up on the messages. I've had to let a load go otherwise I would be here for days writing replies.

I think that the insurance cover all depends on what the expectation is in the contract. From my experience they've always demanded to see evidence that the required insurances are in place before they will release the first payment. However, as you state this contract may like yours be different.

I think that the revenue really got nasty in the 90's on the run up to IR35. Many was the happy hour that I spent in the local revenue offices arguing over the smallest things in my accounts.

On one occasion when they were dismissing out of hand my claim for use of home as office I actually ended up taking the inspector back home and showing him that I really did have an office with computers and business books on the shelves and that the room was obviously not used for anything else except business.

Anyway, he allowed that but then claimed that my airfares to a client site in Slovenia was home to work fare and disallowed them! In total I ended up with a bill for a little over £3000 and was told to either pay there and then or they would add penalties, interest and surcharges taking the debt to close to £15,000.

I paid the bill but got my accountant to earn her money for once (normally I do everything except year end filing myself). Eventually I got the money back, plus interest, but it took her phoning a friend of a friend somewhat higher up the tree at the revenue to get the matter resolved.

ChrisBolton · Senior Member

We did initially set up the company to sell Jewellery, but this has not really taken off.

My wife is also a reflexologist and training to become a nail technician, which we also put through the ltd company. Will this help with the IR35 side?

Shamus · Forum Moderator & Expert

Hi Chris,

Assuming that your memorandum and articles allow such diversification then yes it will.

I assume that you've checked that the company is allowed to do bookkeeping?

Most new companies have a catch all phrase in them allowing the company to do anything that brings in a profit but you need to check that in the small print of your articles as if it was an off the peg company it could have been hanging around for a while or been recycled from a dead company and have old style, more specific articles.

On the training front note that where the company is already profiting from a business stream then further training in that is allowable. For example, as a bookkeeper your CPD is an allowable expense.

However, to train someone in a trade that is not currently bringing in revenue is not allowable. So it would not be allowable to put training to become a nail technician through a company that currently does not work in that field as that is a diversification.

Taking another example of that. If you set up a limited company to be a bookkeeping business but had no skills as a bookkeeper then you would not be able to put your training off against the company.

However, once you have the skills then enhancement of those skills, perhaps adding Payroll processing, would be allowable.

This sort of thing gets a bit crazy. In IT one can buy a book on COBOL if you are a programmer in COBOL but you wouldn't be able to put a book on Java through as even though it's just another programming language as its something new rather than an enhancement of existing skills.

The system is crazy as it works against people bettering themselves. But, it's the system that we're stuck with so all that we can do is work around it.

aaiyegbusi · Newbie

Hello

I am working through an agency, have been getting paid via PAYE but now am thinking of getting paid via LTD company setup by me. is there any tax implication i.e do i need to pay corp tax as a limited company or just tax and NI on my salary? I really need any advise on this.

Thanks

Ade

Rhianrach · Expert

You would pay corporation tax on your profits after your directors salary has been removed, this can work out to be the cheapest way.

Example.

You make a profit of £500'000

Pay yourself £250'000 taxed at 40%

your profit would then be £250'000 taxed at 20% (or whatever the rate is now)

If you were a sole trader/partnership or paye.

You make a profit of £500'000

You are subjected to 40% on the full £500'000

So as a Company you would pay in tax (not in reality just using the figures above ),

£250'000*40% = £100'000
£250'000*20% = £50'000
total = £150'000

As a partnership/soletrader paye

£500'000*40% = £200'000

So you would gain £50'000 in this scenario by becoming a ltd company.

There are different ways of paying yourself as a director, in reality you would need to talk to an expert, someone on here will know all the ins and outs.

-- Edited by Rhianrach on Thursday 20th of May 2010 08:38:06 AM

Shamus · Forum Moderator & Expert

Hi Ade,

I use a limited company myself and the figures are not quite as simple as Steve is implying (sorry Steve).

what sort of business are you in? This affects whether you will be able to pay yourself dividends reducing you're NI liability... From the description so far I think that IR35 will be applicable which limits the access to use of dividends to whatevers left of 5% of turnover after taking all other non allowable expenses such as accountancy fee's into consideration.

In brief though for starters you only pay corporation tax on the profits of your company so if you don't make a profit after paying travel / pension / salary etc. then you don't pay corporation tax.

However, please note before taking this path that as a director you have a fiduciary duty of care for you company not dissimilar to that which one has for a child. The company is a legal entity in it's own right the same as a person. It can take out loans in it's own name, has tax responsibilities, etc.

You as director are responsible for the care and well being of the company in your care. If you abuse that responsibility you can lose your right to act as a director and face financial penalties.

Also, if you use a limited company for your own ends without thinking of the well being of the company then the veil of incorporation can be lifted and you held personally responsible for the debts of the company.

That happens very occasionally where directors of one man limited companies cannot see the difference between the companies money and their own money and use the company as a private piggy bank.

Remember always that as director you are an employee of the company, earning money for the company and you are entitled only to payments made to you by the company. You do not have unfetted right to access to the funds of the company.

As a one man limited company who states that they were previously PAYE and now going ltd. you need to be abreast of the IR35 legislation so you might want to look that up for starters.

When you've taken that in let us know and fill us in with an approximate turnover so that we can knock a few figures out for you.

All the best,

Shaun.

Rhianrach · Expert

"I use a limited company myself and the figures are not quite as simple as Steve is implying (sorry Steve)."

No need to apologise, hence the talk to an expert, smile

.

"That happens very occasionally where directors of one man limited companies cannot see the difference between the companies money and their own money and use the company as a private piggy bank.

Remember always that as director you are an employee of the company, earning money for the company and you are entitled only to payments made to you by the company. You do not have unfetted right to access to the funds of the company."

This is good advice, I know of one company owned by brothers who do this and are know knee dip in poop because of it. In fact one of the brothers is who I am working for, he (an educated man) saw what the other 2 were doing and told them to keep the company (that had been passed down for generations and actually earnt a lot of money) and stopped being any part of it, but bought one of the shops (the more lucrative ones) and setup on his own. He may of walked away from a fortune but it was the best decision he made, as the other two brothers are about to be bent over and whatsited by the taxman.

Shamus · Forum Moderator & Expert

Hi Steve,

Unfortunately it happens. I hear about it a lot where people go from self employed to limited and don't realise that they have actually become an employee of a company so continue to treat the companies coffers as they did as self employed bods on the assumption that everything will be sorted out without any tax implications at year end.

I always find it amusing watching Dragons Den where Theo Paphitis and Peter Jones end up with their heads in their hands due to the people in front of them not being able to get their head around that basic concept.

The episode with the planes taxi service for Scotland comes to mind. The one guy really couldn't get his head around the fact at all that the company had bought the plane so the plane belonged to the company, not to him.

Sounds as though the brother who escaped did the right thing. No doubt he'll be able to get the rest of the company in the fire sale when the remaining brothers are trying to raise the money to pay the revenue.

You just really have to feel sorry for the employee's when companies are run like that.

Wella · Expert

Shaun, it seems today I have my curious head on and am asking spurious question that these posts raise.

This post has a lot to do with fiduciary (a nice word) care. My mind has wondered to the case of these large, almost wholesale, furniture, or kitchen, or carpet companies that hit financial hardship and continue to take deposits off of customers right up until they close the doors. Although obviously morally wrong, are the directors not in some way complicit in a deception, or taking monies under false pretenses?

I remember that episode of Dragons Den and also found it amusing. I find the hardest part of the job is trying to get the client to understand the basics. Doing the actual paperwork, is usually a doddle by comparison. It becomes even easier when the penny finally drops with the client

Bill

Shamus · Forum Moderator & Expert

You're right Bill, it's definitely a theory test day. (Brilliant isn't it!).

Yes, if it can be shown that the directors know that the company was trading whilst unable to continue as a going concern then they can be held personally liable for the debts of the company.

The problem of course is that they take the money off people who do not have the financial backing to go after them in that way and it ends up cheaper just writing off your deposit than going after the directors.

Another one that often happens is Phoenix companies where the directors set up a new company, fold the existing company and sell all of the assets of company A to company B at knock down prices.

Company B will trade exactly as company A did, often from the same premises with the same equipment and people but any warrantee or debt of company A will have disappeared!

In this case again it is possible to argue personal liability by the directors but the costs involved make them above justice.

If a company pulled that trick on a bank they wouldn't get away with it, pull it across Joe public and you've got nothing to worry about!

Don't you just love the separation of civil and criminal law in the UK justice system!!!

Wella · Expert

Thanks for that Shaun

Maybe it's time to don the cape again!!

Bill

Shamus · Forum Moderator & Expert

Or maybe considering that our little group seem to have become the fourth emergency service for bookkeepers we should become the A-team!

"If you have a problem, if no one else can help, and if you can find them, maybe you can hire... The A-Team".

Lol... Of course, we don't really want to change themes otherwise Amanda might change her Avatar and non of us want that!!!!

semsley · Guru

And I like being Miss Ellie

Wella · Expert

I like you being Miss Ellie too

Shamus · Forum Moderator & Expert

Hi Sheila,

Yep, I've quite taken to being JR as well.

I don't imagine that there's that many themes that have enough characters for all of us so Dallas it is for a second term.

Hope that you''re days going well.

Wella · Expert

Hmm, not sure about Digger though

Shamus · Forum Moderator & Expert

Ahh Bill, but you used to be Miss Ellies love interest before she went off with Jock so there's always an upside!... Sheesh, it's really sad that I know the storyline from a thirty year old TV series!

Shamus · Forum Moderator & Expert

Of course, if you want to wear a hat like Rob and myself then go for an image of Clayton Farlow who appeared in the series as a competitor oil baron.

Clayton's love interest was Sue Ellen rather than Miss Ellie.... Actually, that's my missus isn't it!

semsley · Guru

Gosh was it 30 years ago, I remember it like yesterday - unfortunately! Must admit I had quite a crush on the man from Atlantis!!!

Amanda · Expert

Yes Sheila, I remember man from Atlantis, (although I was quite young honest), he was a hunk in that!

We used to watch Dallas alot in those days. Mind you not much else on was there!