Is this legal / possible?

[Jon123]

If a person is a partner in a few unincorporated partnerships and also has a sole trader business. Can that person create a LTD co to bill these companys for consultancy fees/time to reduce profits and have a more favourable tax position through the ltd co?

Cheers
Jonny

 

[KidsBeeHappy]

Yes. This is possible. But considering personal tax rates, and corporate tax rates, and the fact that the person has to then get the money OUT of the Ltd company, it might not be a straightforward method to reduce OVERALL tax.

Also, a tax investigation into one, will rapidly open up into a good few years worth of grief and investigations into the lot.

 

[Maslins]

I'd always recommend trying to keep things as simple as possible. You'll add a fair bit of aggro, plus probably increase your accountancy fees to do this. Is it worth it?

Also, you'll need to be able to justify the "consultancy fees", otherwise HMRC could argue they should not be a deductible business expense for the partnership and sole trader business.

 

[Jon123]

malsins could explain more on the consultancy fees justification? whats reasonable whats not?

cheers
Jonny

 

[Maslins]

I just mean there needs to be substance behind it. Imagine the owner of the Ltd Co was a completely independent third party. Would you still pay them for the consultancy services they provide?

In short, will the company actually provide anything? If HMRC think it's simply a farcical number created to shift profits into a lower tax vehicle, they can dispute it.