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Sister company formation

tragratragra Just JoinedRegistered Posts: 3
I have a client who is currently self employed. He has been doing some work for a company recently and has been asked to set up his own Limited sister company.
I would be very grateful for any advise on this request as Im really not sure where to start.


  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    As a starting point, why has he been asked to start up a company?

    I'm going to take a wild guess and say the employment status is dubious and the contracting company wants some protection and thus wants him to trade through a Ltd, in which case, you need to look into IR35.
  • payrollpropayrollpro Trusted Regular Hampshire/SurreyRegistered, Working Together with HMRC Posts: 418
    Yes Monsoon, that was my thought. I know many companies prefer to deal with a fellow ltd but the main reason for insisting on this is to transfer the liability for deemed employment on to the contractor.

    Whilst this can provide some protection they need to recognise that they still bear the responsibility for detemining the true status of the arrangment and if the relationship is too close and fails the status checks there is a liability for PAYE even if they are paying a ltd company.

    My other thought was the term "sister" company? Not sure what relevance this has.

    I would say your client should make the decision on business lines and I feel your job is to outline the differences between S/T and Director status and help them come to an informed and practical decision on the matter. The pressure to trade in a particular way should not be a part of this.

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