Contractors' Questions: Why can't I contract through my partner’s 'Ltd'?

Contractor’s Question: I'm new to contracting and am registered as a sole trader, but my partner has a limited company. As a gas engineer, I’d like to use their ‘Ltd’ for my new contract.

But I’ve been advised by the recruitment agency who we will be sub-contracting from that I must be either a director of the company or use an umbrella company; why? Doing that just seems like another way for the taxman to get his hands on my money.

Expert’s Answer: Looking at the option of working through your partner’s company, the challenge here is that as part of their ‘due diligence’ the recruitment agency will want clear evidence of an affiliation between you and the company with which they are engaging.

Simply being an employee of your partner’s company isn’t enough.

In any case, becoming an employee of your partner’s company would open them up to a whole range of responsibilities.

Like an umbrella company, your partner would need to perform a complex payroll function and take into account holiday pay and many other statutory benefits that come with an employer-employee relationship. They would also need to think about pension auto-enrolment and in future P45s / P60s.

Given all of this, if you are determined to work through your partner’s company I would recommend that you become a 50:50 shareholder and director for the duration of the assignment.

Yet even this brings its complications, particularly if you want to take advantage of the VAT Flat Rate Scheme (FRS) and your partner is in a different line of work and therefore on a different rate.

You could of course set up your own limited company. This could be a viable option if you: (a) have sought advice on IR35 and are confident that you will not be captured; (b) expect to be contracting for a reasonable period of time; (c) expect to continue to source assignments through recruitment agencies; (d) work in the private sector and (e) are on a medium-to-high assignment rate.

The other option is to be employed by an umbrella company on this assignment.

As you are new to contracting, the benefit of the umbrella route is the lack of hassle and admin -- coupled with the fact that you will be able to dip your toe in the contracting water without making a long-term commitment.

The expert was Jon Cooper, accounts service manager at contracting solutions provider ADVANCE.

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