Online Business - LTD Company

[Monstorious]

A good friend and myself have started an online business doing various tech-related things.

Basically we both run a computer repair business in our local areas, we are 300 miles apart however.


We have started an online website + ebay business. We have started getting alot of steady business and are stressing about taxes and what not.

I'll call my friends business Company 1 and mine Company 2

Company 1 is a LTD business and is taking all responsibility for tax's and book keeping on our joint-online business.

Company 2 is acting as a sub-contractor for Company 1 but owns 50% of the business. Company 2 invoices Company 1 for work done.

Company 1 is putting the tax's down in his normal books for his computer repair business, under his business name.


The idea is i invoice my partner for work done and pay 20% (tax) on my share, and he sorts the expenses out etc his end and pays 20% on his share,(tax) is this the correct and best method to do this?

Also we would like to reinvest everything back into the business, we do not want to take a wage, however we decided i would still invoice him for work done and mark it as paid, even though he wont be paying me as it's all going back into growing the business.

Sorry it's a bit long winded. Hope someone can shed some light.

 

[faradaykeynes]

why don't you open simple partnership and decide what ever profit sharing you want. Less legalities as well compared to Ltd company. Secondly if it is actually physical computer repair work and nothing remote support or web design etc , how will you share work load 300 miles away?

Second option both work as sole trader and share expertise by invoicing each other

 

[Monstorious]

Partnership isnt really plausible.

We both live 300 miles away and have seperate established businesses in our local areas.

What we are doing is courier and postal repairs of special equipment. We have created a brand if you like for our special repairs, but this brand is not registered anywhere. It is just us two operating behind the name.

Friend receives payments and i invoice him for my work done (my wage). However i have a 50% share in ownership aswell.

Is there a better way to do it? I don't think a partnership is the answer in this case? Unless we seperate the online business completely from our main established businesses?

 

[faradaykeynes]

With new IT products prices coming down every day , Laptop repair business has taken big hits. People dont want to spend much on repairing laptops. How much of business you expect to be doing mutually as you mentioned you both have established business? If you have not registered your brand perhaps you should.

 

[Monstorious]

Hi fara, it is not laptop or computer repairs we are dealing with. We've hit a big market on something else kind of related - either way i think we are just going to stick to the way i said in first post as its the simplest

 

[faradaykeynes]

I wish you many Good Luck

 

[Mitchells Bristol]

Hello there

It is certainly "a way" to do it - whether it is the best way or not will depend upon quite a few factors.

1) Corporation tax - there is a possibility that the businesses are considered to be associated which may dilute your corporation tax thresholds, pushing up the rate of tax payable.

2) VAT may (or may not) be an issue on the inter-company charging, and in terms of calculating whether you breach the thresholds.

3) Compliance costs - you will have two lots of costs, such as accountancy fees, through running two companies.

I think if you each retain separate business interests, the profits from which are not to be shared with the other party, then the solution you have is probably the only one available, short of establishing a third business to handle the joint venture, which further complicates the three issues described above....

Hope this is of some help

 

[Monstorious]

Hello there

It is certainly "a way" to do it - whether it is the best way or not will depend upon quite a few factors.

1) Corporation tax - there is a possibility that the businesses are considered to be associated which may dilute your corporation tax thresholds, pushing up the rate of tax payable.

2) VAT may (or may not) be an issue on the inter-company charging, and in terms of calculating whether you breach the thresholds.

3) Compliance costs - you will have two lots of costs, such as accountancy fees, through running two companies.

I think if you each retain separate business interests, the profits from which are not to be shared with the other party, then the solution you have is probably the only one available, short of establishing a third business to handle the joint venture, which further complicates the three issues described above....

Hope this is of some help

Hi thank you for the useful information.

My business is not actually LTD, i act as a sole trader. The only LTD business is my friends, which we decided to have all the online business books go through and i invoice him.

So the way we are doing it is not illegal in any way? Aslong as he pays tax on his profit and i pay tax on anything i invoice him for?

 

[Mitchells Bristol]

It's certainly not illegal - depending upon the sums involved it may well not be tax efficient as a structure but there should be nothing wrong with it.

There may be a small risk lying with your friend's company that you could be deemed to be an employee of that company (creating a potential PAYE exposure), but again would need exploration of further details.

 

[Monstorious]

We're not going to be turning over anything big. Currently estimate £200 a month profit, taking around £1.5k all together.

We have agreed that when we start to increase sales and our volume gets larger, we will seek assistance from an accountant.

But the way we're doing it now while starting out, you seem to think that we're not causing any harm but it may be ineffecient.

Appreciate the advice!