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Salary to contract work tax advice?

I currently work for a company on a salary and pay tax at the basic rate. At the moment, my brother isn't earning and therefore not using his tax allowance. We both work in IT.

I am considering becoming self employed in partnership with my brother or setting up a company for which we would both work.

Our partnership/company would then provide the same services to my current employer on a contract basis at the same annual rate as my current salary.

Initially that would be the only revenue source for the business, but we would obviously seek to add clients and other revenue streams quickly.

Please can anyone suggest what would be the most tax advantageous way of operating if we were to do this.

Thanks in advance for any suggestions

Regards Steve

Reply to
Steve
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Two things suggest to me that you won't gain anything much:-

IR35, the IR will say that the contract is 'disguised employment' and thus you are due to pay the fill NIC as if you (in the singular) had been employed to the the work.

The IR are now using another clause in the rules (660 comes to mind but may be wrong) to say that the person who earns the money must pay all the tax due. Splitting the earnings across two allowances (e.g. husband and wife) where only one person actually does all the work isn't allowed. Even if the partner does book-keeping etc. the IR will try and tax the earnings as if they were all one person's.

If you genuinely *both* do the work then you should avoid the second problem I have outlined.

If you manag to get other contracts, particularly fixed price ones as opposed to hourly paid ones then your company will be more likely to avoid IR35 as well.

Go and take a look at

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to get some more complete information on this minefield.

Reply to
usenet

Hi Chris Many thanks for the information and the link.

Both of us will be doing the work, in fact we both already do, as I rely on my brother for a lot of help and advice. It's just that at the moment he receives nothing for it.

I'll do some research and reconsider the options

Thanks again Steve

Reply to
Steve

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