AIBU to want a stake in the company earning from my work?

[Osakagirl]

I have been working as a freelancer since losing my job about a year ago. I'm based in the UK and I've been working part time for various organisations overseas, invoicing through my husband's company to avoid IR35 complications. He pays me a relatively low wage and contributes to my pension.
Recently I won a much more lucrative contract for 18 days work a month, effectively full time. I won the contract entirely down to my own efforts, they only want my services and there is no other money going into the company other than what we will receive for my services. He wants to pay me the same low wage, which is about 15% of the actual amount that I'll be invoicing. At present I'm not a shareholder or director of the company.

He is keen to ensure that the business is as tax efficient as possible, but at this rate the business will be retaining 85% of profits. I've asked him to make me a shareholder and director, but he wants to wait for the next tax year. I'm worried that I'm very exposed financially, particularly as I am the only person making any money for a company owned entirely by him. I've told him that I won't agree to any contract unless he agrees to make me a shareholder and director, and otherwise I'll set up my own company.

For context, we've been married 15 years, own a house together and have two kids. He is very careful with money and generally makes good financial decisions. However, I have had several friends who have experienced financial abuse and want to ensure that I am protected, particularly as I am bringing in the income. He was not at all happy when I mentioned this, but I said it was to protect me incase he left me or something else happened. Any advice?

With ir35 you would not be retaining most of the money as profit.
If you are reasonably numerate you can do your own accounts and paye. You can also do you own companies’ house and tax returns.

I used to work for a US company in a freelance full time capacity. Invoice as a sole trader, your US company should send you W8-BEN forms to fill in every couple of years to avoid double taxation (there’s a tax treaty with the US) and you then do a normal UK tax return. It’s not complicated. People who screw you over thrive on making this stuff sound scary and complicated but you can absolutely do it yourself!

He needs you to be set up as an equal shareholder in the company so you can receive dividends , he’s actually missing a tax benefit by not utilising your dividend allowance. If he refuses then set up your own limited company - it’s not difficult and then you can choose how you get paid

You could be a shareholder for less than 50% if he doesn’t want you as a director for some reason (possibly male pride? Even the best men are prone to having a bit of the billy big balls pride!) if you are less than 50% then you are able to access profit via dividends but aren’t liable for any debts should the company liquidate etc
also at less than 50% shareholder you won’t appear on companies house so it will still be ‘his’ business.
As for tax efficiency, it makes more business sense for you to receive a salary and dividends as that will decrease the overall profit of the company and therefore reduce tax owed at the end of the year. Also assuming he is VAT registered you could claim back VAT on many of your business related expenses especially things like travel on planes, trains, taxis, fuel, meals, the occasional new outfit (for business purposes of course!)

Why would OP do this?

If she only owns, say, 40% of the shares, then she only receives 40% of the dividends. The other 60% of the dividends go to the other shareholder - in this case the husband. The tax efficiency of paying herself a small salary and then drawing dividends is also available to her if she owns her own company, and it resolves the basic issue that she is doing all of the work but is not receiving all of the income generated.

Others have quoted the approximate fees for accountants, company secretary services, business insurances etc. in connection with the OP running her own limited company, but the husband's company is also incurring these fees somewhere along the line - for book keeping, payroll, tax filing, Companies House filing etc. - so who owns the company makes no significant diffference to the overall profit of the company. The OP has stated that the only income that the company currently has is the fees that she generates - the OP is not being paid via a company that has other activities.

The book keeping activities involved in running a small limted company are not particularly difficult - there are commercial software programs that are available off the shelf that do all the work, including invoicing, and that also do the reports for income tax and corporation tax purposes. If the OP has significant costs in terms of travel, hotels, materials etc. then it is worth being VAT registered in order to be able to claim back the VAT, and the business software also calculates all of this. When I ran my own company, filing the VAT return took no more than half an hour once every 3 months.

This is his logic - he is very fiscally aware and both of our salaries go into a joint account. His take home is £5k per month, and his logic is that our combined income of £6k pcm is enough to live off, as we will be paying off our mortgage this year - no debts, no school fees or childcare costs. He's been responsible for investing and has filled up my ISA each year since we married 15 years ago. He can be a bit controlling when it comes to money but it's more to do with his insecure upbringing and past experiences of redundancy. He is the type who would never allow us to roll onto a tracker mortgage or a more expensive utility deal without getting the best deal. I do appreciate this quality - I was often in overdraft before we met, and he has made me more fiscally aware and responsible.

His argument is that if we can run more costs through the company whilst he's working in a salaried role then we can save harder and pay ourselves a dividend if we need extra money for something, but £6k per month should be more than sufficient for our needs.

Generally he is much more fiscally aware than I am - so he's been responsible for investing etc, so he takes on responsibility for this area, and I do other tasks. I do trust him to make good decisions, but want to make sure that I have an equal say in how things are run and that if we split up, or there was some other kind of issue, I would have access to the company capital. It would be really helpful to know whether it would be better for me to become a shareholder or a director. Of course, I could set up my own company and may end up doing this but as he's actually quite good at running his company, I'd like to explore how my rights can be protected if I continue running things through his company.

I think the bottom line is that your rights are not well protected if you continue running it through his company. He will say it’s fine because it works for him.

@Osakagirl "His argument is that if we can run more costs through the company whilst he's working in a salaried role then we can save harder and pay ourselves a dividend if we need extra money for something, but £6k per month should be more than sufficient for our needs.

Generally he is much more fiscally aware than I am - so he's been responsible for investing etc, so he takes on responsibility for this area, and I do other tasks. I do trust him to make good decisions, but want to make sure that I have an equal say in how things are run and that if we split up, or there was some other kind of issue, I would have access to the company capital. It would be really helpful to know whether it would be better for me to become a shareholder or a director. Of course, I could set up my own company and may end up doing this but as he's actually quite good at running his company, I'd like to explore how my rights can be protected if I continue running things through his company."

I know I'm repeating myself, but why does your work have to be managed through his company? You have stated earlier that the only income that the company has is the money generated by the fees that you charge for your work, so why does this go through his company and not through one owned by you? The costs of running a limited company (accountancy fees, Co. Secretary, filing etc.) would be the same regardless of who owns the company. For clarification, does his company have any other income apart from your fees?

"We ... can pay ourselves a dividend" - not so. You are not currently a shareholder, so you don't get any dividends.

"I could set up my own company and may end up doing this but as he's actually quite good at running his company" - What does this entail? Back to the question of what does "his company" do apart from manage the money that you generate?

"I'd like to explore how my rights can be protected if I continue running things through his company." - Notwithstanding the marital situation and the joint rights that you might have over marital assets, your basic rights are not protected as long as you are just an employee of your husband's company. As he is the only shareholder, he could empty the company of all its cash (and run up debts), and then drink, smoke and gamble the money away and you would have no recourse. You need to seek professional advice about how to run your own company in order to protect yourself and the money that you generate. Start here > Start your business - GOV.UK

If he's not using the company, can you swap so he's an employee and you're the director? No idea whether this is tax efficient etc.

She's not.

Isn't she? I am no expert but if she's doing work as a freelancer but she's running the payment through the company of a completely different person to avoid paying her fair share, it seems clear she's deliberately misrepresenting the situation to HMRC? Either way I'm surprised that so many people are rushing to provide advice on how to better dodge tax on a public forum. No wonder our public services are in decline.

For the safety reason of not having liabilities for debt.
And yes technically your share of dividends is whatever share you own but it doesn’t have to be through articles of association etc

Although he's the sole director and shareholder, the company is jointly owned by both of you as part of your shared marital assets. Similarly if you take on a loan he is also liable for that because he's your spouse.

The law assumes a married couple make joint decisions and have joint assets.

He cannot do anything with the money in the company except for the best interests of the company as that's his obligation as a director.

So, theoretically you are covered.

However, even if you become neither shareholder or director, make sure you become a signatory to the bank accounts, and get yourself made company secretary so you have full visibility into the financial situation.

So you are earning the entire amount of earnings of your husband's company and he pays you a tiny amount as wages? How on earth can he have control of your income when you are the sole earner? He is treating you as an employee and creaming off the top of your earnings. Unless I have this completely wrong of course?

@CanSeeClearlyNowTheRainHasGone "Although he's the sole director and shareholder, the company is jointly owned by both of you as part of your shared marital assets.

The company is a separate legal entity, fully owned and under the control of the shareholders and directors - in this case the OP's husband. It is not jointly "owned" although the OP might have a claim on the assets in the event of the couple divorcing. On a day-to-day basis, she has no say in how the company is run as she is neither a shareholder or a director.

Similarly if you take on a loan he is also liable for that because he's your spouse." "The law assumes a married couple make joint decisions and have joint assets."
This is not correct. In the UK, the general rule is that each spouse is only responsible for their own debts, regardless of whether they are married or in a civil partnership. A spouse is only liable for their partner's debts if they have personally signed for the debt (e.g a joint loan or by acting as guarantor) or for any joint accounts. An exception is if a loan was taken out by one party to finance something that was for the benefit of both parties, such as a family holiday, in which case the loan company might have a claim against both parties.

"He cannot do anything with the money in the company except for the best interests of the company as that's his obligation as a director."
As far as we know the "company" only has one shareholder, the OP's husband, and as such he can do whatever he wants with the money in the company. He is "the company" and has no obligation towards his employee (i.e. his wife) other than paying her the agreed salary and generally following employment law.

"So, theoretically you are covered." Absolutely not. He has no obligation to tell her anything about the company and its finances. If the husband decides to empty the company bank account and spend the money on booze, fags and loose living the OP has no protection whatsoever, even though the only income that the company receives appears to be the fees earned by the OP.

Wtaf?
If I've read this correctly he has a limited company. You invoice through it but the company doesn't do anything else except what you earn? You then don't take much out (presumably because of tax reasons?). So the company worth grows and nothing much comes out from your husband either?
But it gives you a nest egg should you need it and it's an efficient way to save for kids.
Yep you should be a 50% shareholder.
My husband is director of a company I and only me does the work for. He's the director as I don't want my name on companies house. I'm a 50% shareholder. Sometimes it pisses me off that he doesn't do the work itself and in theory owns 50% but he does do the childcare and the accounts. And the money mostly sits there waiting for my kids.(It's not a huge amount).
That's a much more equal arrangement. It's the bare minimum you should have. I didn't have to ask my husband to set it up like this. He just did it without an argument because that was fairer.

@Lacksplease "My husband is director of a company I and only me does the work for. He's the director as I don't want my name on companies house. I'm a 50% shareholder."

If you own 50% of the shares you must register this with Companies House as you fall under the PSC reporting rules for People With Significant Control of the company. Not registering is a criminal offence.

If your husband has control of the company accounts you are in exactly the same position as the OP - unless you require all withdrawals to be jointly signed your husband could empty the bank account and run off with all the money. Assuming nobody else is involved, he doesn't own 50% of the company "in theory" - he actually owns 50% and you appear to be happy to allow him to control it.

Doing the childcare has nothing to do with the affairs of the company. If you are happy for him to do the accounts (and presumably also to file all of the tax returns, Co. House returns etc) then employ him or pay him a fee for doing this and take 100% ownership and control of your earnings by having your own company or by being a sole trader.

@TheShyMumX "...if you are less than 50% then you are able to access profit via dividends but aren’t liable for any debts should the company liquidate etc
also at less than 50% shareholder you won’t appear on companies house so it will still be ‘his’ business."

If the Company is a private limited company (the usual form for such companies), limited by shares or by guarantee, then the OP is only liable for the amount that she has subscribed in shares or for the amount of the guarantee. The "Limited" in a company name is a warning to other entities that the company has limited liability, limited to the share capital or guarantee declared with Companies House. In general, a director cannot be held liable for the debts of a company - there are exceptions such as when the company has been trading fraudulently, or when the debt is to the Tax authorities, or where a debt has been personally guaranteed by the director. Protection from personal liablilty is the whole point of creating a separate legal entity in the form of a limited company.

A shareholder of such a company who owns 50% of the shares is required to register this with Companies House under the PSC rules - the threshold is 25%.

I’m not entirely sure you are understanding my points to OP - if you would like to give financial and legal advice to her privately then please go ahead. I have posted general advice should she wish to look in to it further. As a chartered accountant it would be unwise and unprofessional of me to do any more than that considering I have no idea of company income, costs or turnover, and that the OP has stated she isn’t as fiscally aware as her husband.

This

I'm not understaning how a chartered accountant would not know that the OP would not be liable for the debts of a limited company should it liquidate (except under very specific circumstances such as fraud) nor that the threshold for PSC reporting to Companies House is a shareholding of 25%.

My advice to the OP has been that if she wants more insight into her financial and legal position and more control over her earnings (the theme of her thread) then she should seek professional advice, preferably from an accountant who specialises in advising small businesses and freelance workers. I've also included links to the Government website where she can find much information.

Congratulations, you’ve just discovered why trying to save a small amount of tax by being “clever” is usually more of a ballache than just paying your tax like everyone else. If you’ve been working for various organisation simultaneously/overlapping on a short-term contractor basis then there shouldn’t have been an IR35 impact anyway.
If you set up a limited company, get yourself VAT registered, and have several projects/clients each year it would be fairly easy to show you’re not an “employee” of any of those other organisations and as the shareholder & director you’d be able to plan you own pay/dividends better.

There's no evidence that there is anything wrong with the situation. If you go on temp work through an agency it's not tax dodging, is it?

No, but that's not what she's doing. She said she is invoicing through her husband's company to avoid "IR35 complications." Meaning that she's concerned that if she didn't invoice through her husband's company she might be considered to be inside IR35 and thus pay more tax. Otherwise there would be no point, would there?

Effectively an umbrella company. Incredibly normal. There is no evidence it is a dodgy set up.