Can a limited company contract its director as a sole trader?

Hi
My girlfriend and I are both directors of our limited company.The limited companies carries out construction work ( extensions , refurbs etc)

I have a sole trader business that carries out internal works only( shop fit outs, kitchens , wardrobes etc)

My girlfriend has a sole trader business that carries out interior design and supplies small fixtures & fittings( fancy lights & curtains etc)

We both had our sole traders business prior to getting together and the forming the limited company.

Our building company has just been awarded a large extension for a high profile client.The client also wants to employ my girlfriends business for the interior design and fine furnishings work( based upon its reputation) .Our building company got this work because of her contacts.

Obviously the easiest way would be to just let the limited company do all the work , but I can fully understand that she wants to take the interior design contract through her own business and not through the ltd company as we agreed at the beginning that there would be no overlap between the companies. Unfortunately, because the client is using bank funding for the entire job , they do not want to deal with 2 different businesses.

So my question is , can the limited company take the full contract and sub-contract the interior design element of the works to my girlfriend's sole trader business,(C2 registered) even though she is a director of the ltd company.

I'm sure some people might say that as we are partner's (with kids and a home etc) that is does'nt matter how the money gets to us , but as i mentioned we where both in business prior to meeting (thats how we met) and we agreed in the beginning that "business is business".As well as that , her business is substantially more profitable than mine or the limited company and i would 'nt expect her interior design works to enhance my business profitability.

Sorry if this is a long post , but i wanted to give some background info.Feel free to edit it as needed.
thanks

carjo said:

So my question is , can the limited company take the full contract and sub-contract the interior design element of the works to my girlfriend's sole trader business,(C2 registered) even though she is a director of the ltd company.

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If the contract with the customer permits your ltd company to sub-contract any or all such parts as deemed necessary then there should be no difficulty contract wise. Your ltd company may need to ensure it is insured for any negligence/flaws on the part of its sub-contractors too.

Insofar as concerns company law the main issue is disclosure. Related party information on contracts such as this need to be disclosed in the financial statements. The pricing too should be on "arms length" basis, i.e. no more favourable terms than any sub-contractor would get.

You also need to ensure you abide by all relevant RCT regulations.

Thanks for that.
I'm happy enough with the contract and work side of it , My main concern was the practical side of writing a chq from the ltd company to her sole trader business name , within the same month that she takes a wage cheque from the ltd company as a paye worker.

On the tax side she does have a c2 for her business and would supply a vat invoice , but could it be argued by the revenue that it should be a paye payment.

carjo said:

but could it be argued by the revenue that it should be a paye payment.

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This is one of those issues that no one knows the answer too.
You can ring the revenue one will say X the other will say Y.
At worst I think it could be called tax avoidance rather than evasion, I know that is not why you are doing it.
She will pay tax on the money eventually, so I personally don't see the problem.

Why not just bill the client through the limited company then pay an additional "dividend" or drawing from the company to your girlfriend? You would be obliged to withold tax and PRSI from this payment, but it wouldn't make any difference to her in the long run.

Although she is supplying design services , she will also be supplying small fittings such as curtains , wallpaper and small items of furniture.Knowing this clients taste , these items will be small but very expensive.She needs to buy these items through her suppliers that she has accounts with in her sole trader business.She would obviously need to take full payment for these things direct to her sole trader account to cover cashflow etc.I suppose any profit on them could be taken as a drawing from the ltd company but she would prefer to be paid in full for elements of her design work direct to her sole trader business .Also as she will have expenses against this money it would make be very expensive to just take a paye payment.

patftrears - You are right , i rang the revenue and got one answer , my girlfriend rang and got another.

I have found out that it is not a problem for directors of different companies to sub-contract between the companies but still hav'nt got an answer on the sole-trader / director thing.I have asked the accountant but only got a vague answer.

Why not look at takin ght etwo separate business' into the umbrella of the company? IE Carjo & partner Construction Ltd t/a Carjo Fit Out and t/a Partner Interior Design.

That way you would see the incoming revenue split respectively to the relevant business but also minimise the individual tax due as you could base your company (PAYE) salary or a bounus scheme based on the income split, for each project, thus avoiding sole trader tax rates.

Just a thought, needs expanding . . .