Invoice or Dividends - I’m not convinced

[DSLiverpool]

So the bloody saga continues.

I’m a consultant to my own new marketing agency, 2 separate VAT Reg businesses (at the moment)

Do I take a divi from the marketing business or invoice it from my consultant business?

My accountant has advised but I want a PH 2nd opinion please.

[StevieBee]

Without knowing the finer detail, I'd take the simplest option; Dividends.

[DSLiverpool]

StevieBee said:

Without knowing the finer detail, I'd take the simplest option; Dividends.

My accountant says to invoice but I don’t agree, I think they just want to simplify it.

What more info is needed Steve?

[Actual]

PAYE up to personal allowance and pay enough NI to qualify for the state pension.

[DSLiverpool]

Actual said:

PAYE up to personal allowance and pay enough NI to qualify for the state pension.

I have that with the consulting business already.

[paulrockliffe]

Invoice. You can simply take the payment of the invoice as a dividend, but one company working for another would have all the normal tax liabilities that go with that, so why would you not invoice for it? Without the invoice you're either getting the tax position wrong or leaving a hole in your accounts.

[DSLiverpool]

paulrockliffe said:

Invoice. You can simply take the payment of the invoice as a dividend.

Explain this please Paul - I invoice but the payment is classed as a divi has lost me.

[Sheepshanks]

If ultimately you're going to pay the money to yourself from the consulting company then at the end of the day it doesn't make any difference, does it?

You can't (or not supposed to) use separate Corp tax allowances from connected companies.

[StevieBee]

DSLiverpool said:

StevieBee said:

Without knowing the finer detail, I'd take the simplest option; Dividends.

My accountant says to invoice but I don’t agree, I think they just want to simplify it.

What more info is needed Steve?

Whether you're drawing a PAYE salary from both business, what the VAT liability is of each. Profitability and thus CT liability. Whether it's a one off thing or regular. Any debt? What your end game is with each....

I would say that your accountant is neither right or wrong. It comes down to the amount and what you want to do with it. If it's a case of taking money from your business endeavours for cars, beers, pies and women then a simple divi payout is all you need. But cross invoicing between two business enables you to explore VAT and CT optimisation opportunities.

[DSLiverpool]

Cheers - both are part time “something to do” projects.
I take the £750 ish NI from the consulting which is a very profitable business as no overheads.

The marketing caught me by surprise as I was just doing it for a pal (on here funnily enough) and it’s took off.

I’m going to take a divi from both companies I think which simplifies paperwork and reduces professional fees.

[Panamax]

DSLiverpool said:

I’m a consultant to my own new marketing agency, 2 separate VAT Reg businesses (at the moment)

You need a good/better accountant, not advice from a car forum.

Sounds to me as though HMRC might eat you for breakfast with that structure.

[DSLiverpool]

Panamax said:

You need a good/better accountant, not advice from a car forum.

Sounds to me as though HMRC might eat you for breakfast with that structure.

You’re not the first to say that but I’m not sure why, I own half of the marketing and all of the consulting. Both VAT Reg both on junior Corp tax which won’t change or I’ll ensure not over £50k comnined.

[Deesee]

DSLiverpool said:

Cheers - both are part time “something to do” projects.
I take the £750 ish NI from the consulting which is a very profitable business as no overheads.

The marketing caught me by surprise as I was just doing it for a pal (on here funnily enough) and it’s took off.

I’m going to take a divi from both companies I think which simplifies paperwork and reduces professional fees.

Interesting,

Is that a company to company divi, or are a personal divi?

If it really takes off off you may need an LLP or some kind of hold co so you can cycle the profits.

Well done for helping out a fellow PH btw..!

[Panamax]

DSLiverpool said:

You’re not the first to say that but I’m not sure why, I own half of the marketing and all of the consulting. Both VAT Reg both on junior Corp tax which won’t change or I’ll ensure not over £50k combined.

That's new information going beyond your first post and may change the situation significantly.

Q: "Who owns the other half of the marketing?"

A1: "My wife/secretary/kids/dog/budgerigar" - problems are just the same as 100% ownership.

A2: "My arms length business partner" - might mean there are no issues at all.

But your first post suggested you can pay yourself whatever you like through either route and that doesn't sound like the sort of thing a genuine 50% business partner would be likely to accept. And if you've got alphabet shares or something equivalent then that's another red flag for HMRC.

[DSLiverpool]

Good point well made - marketing biz partner is no relation whatsoever split is 46/45/9

[MaxFromage]

There may not be a problem invoicing to move the profits over and then paying the dividend. Ask yourself (or your accountant) if HMRC would be losing out if you did this. Secondly, what about the other shareholders. Are they planning/wanting to take dividends and is the shareholding above all ordinary shares (no alphabet shares)?

[MaxFromage]

Also would another small salary first result in a lower rate of tax? It should.

[DSLiverpool]

MaxFromage said:

There may not be a problem invoicing to move the profits over and then paying the dividend. Ask yourself (or your accountant) if HMRC would be losing out if you did this. Secondly, what about the other shareholders. Are they planning/wanting to take dividends and is the shareholding above all ordinary shares (no alphabet shares)?

No alphabet shares, original idea was to take 33% out each leaving 33% in the marketing business to cover overheads. No wages of any kind are coming out of the marketing business but we have lumped all rent / software on it etc

[MaxFromage]

DSLiverpool said:

No alphabet shares, original idea was to take 33% out each leaving 33% in the marketing business to cover overheads. No wages of any kind are coming out of the marketing business but we have lumped all rent / software on it etc

Bear in mind that the dividends need to be paid out in relation to shareholdings, so the other shareholders would need a company as well to draw out profits if you aren't taking dividends. Or salaries, but that depends on profits.

[DSLiverpool]

MaxFromage said:

DSLiverpool said:

No alphabet shares, original idea was to take 33% out each leaving 33% in the marketing business to cover overheads. No wages of any kind are coming out of the marketing business but we have lumped all rent / software on it etc

Bear in mind that the dividends need to be paid out in relation to shareholdings, so the other shareholders would need a company as well to draw out profits if you aren't taking dividends. Or salaries, but that depends on profits.

Yes I’m on that - it’ll be profitable as it has no staff (the 2 main shareholders are doing the work) I thought it’d be simple - I thought