Invoicing your own company?

Hollysan

Hello everyone,

I have a client who set up a ltd company two years ago, two directors doing different but connected consultancy work. They have been invoicing the ltd co for the work they do, effectively as sub-contractors fulfilling short-term contracts for a variety of clients. I feel they should change this arrangement to avoid falling foul of IR35, but what are the alternatives? They do not want to operate PAYE, especially now with all the complications of RTI. They could draw dividends but I would be interested what others would advise in this situation?

Many thanks,

Hollysan

reader

Hollysan wrote: »

Hello everyone,

I have a client who set up a ltd company two years ago, two directors doing different but connected consultancy work. They have been invoicing the ltd co for the work they do, effectively as sub-contractors fulfilling short-term contracts for a variety of clients. I feel they should change this arrangement to avoid falling foul of IR35, but what are the alternatives? They do not want to operate PAYE, especially now with all the complications of RTI. They could draw dividends but I would be interested what others would advise in this situation?

Many thanks,

Hollysan

I would suggest tax-free salaries (I think this is around £624/month for 2012/13) + dividends. I would have thought that this is the most tax efficient strategy to extract profit/money from the company.

Presumably if they are invoicing their limited company they would have to declare the sole trade income (i.e. the invoice is an expense in the limited company but income for them as individuals) which would attract a class 4 NIC bill (not very tax efficient).

You may need to give them preference shares or think about using dividend waivers should they want to take different amounts of dividends.