Profit share between partners, and taxes any help please?

by **Bras** on Mon Sep 12, 2011 12:54 am

Dear friends,
I would like that someone could help me with some doubts I have related to my situation.
I have started a company about a year and a half ago with a friend, and we’ve been operating basically since the beginning of this year doing services to homes since then. But when my partner registered the company, he did it on his name and his wife, and I registered myself as a self-employed, and the deal is that, every service I do, he gives me half of the payment.
Now here is the issue. He says he has to pay 30% of taxes on every job, so he takes off those 30% and them we share what’s left with me, and I give him an invoice as a service provider to his company. I’ve been researching recently on the H&M Revenue web page, and it looks like the taxes collected is not 30%, but 26% if the company makes more than £300,00.00 per year (which is no longer our case), or 20% for companies that profits less than that. For this, I think he shouldn’t discount 30% off my payment, but only 20%, am I right?
Other thing, as I understand, if he pays the taxes then shares the money, it means that he doesn’t need to pays anything else any more, but then when I send him the invoice, I am obliged to pay taxes for the money I received, once again, so I end up paying twice the taxes, while he can use my invoices as company expenses and claim the money back on the tax return. Am I right? What would be a fair way of sharing this money? Can somebody help me please? I don’t have any experience in business and I’m very confused, and feeling that I’m being fooled by my partner. I would be grateful for any advice.
Thank you very much.

by **pawncob** on Mon Sep 12, 2011 5:31 pm

Is this a partnership?
Are you a partner, or is it a partnership between him and his wife?

Is it a limited company? Has he registered it as a limited company? Has he issued shares to himself and his wife? What's on the company's letterheads?

What makes you think that any tax should be deducted from invoices you render to him?
What is the business? Should you be (are you) registered under the CIS? (Construction Industry Scheme)

by **Bras** on Tue Sep 13, 2011 5:41 am

In theory would be a partnership, they but as you can see things went to another way, it’s a limited company, registered as such between himself and his wife, and I entered as a self-employed providing services to the company, the deal is that every job I take they will pay me half of the money, and I give them an invoice of with the amount. I’m not registered under the CIS, but we don’t do building service, but cleaning services.

I don’t know how this invoice tax deduction works, that’s why I’m asking, the thing is that they should pay me half of the money, and they take 30% off of my payment with the excuse that it’s a tax money, and I feel like being fooled all the time with these guys, when I was working for free they say that I was their partner, and I had to work hard and do jobs for free, advertising, leafleting, etc, because when the company starts making money I would have my shares, them when the company starts making profit he registered his wife as his partner and yet, she now thinks she is the boss, and I’m in this situation, getting £300,00, £400 per month, and they don’t even show me the invoices from the clients, they just say, that’s the amount, that’s the 30% of taxes and that’s another expenses we had, and that’s your money. I just want to know if this 30% of taxes is correct, and if they should be taking from my payment, because as I understand, I will have to pay taxes again from this money they paid me, so why are they discounting before paying me. And I don’t know if it’s correct 30%, for me looks like the taxes should be 26% if the company makes more than £300,000.00 per year and 20% if the company makes less than that (in our case would be this last one).
If somebody could help me I’d be greatful, thank you very much.

by **pawncob** on Tue Sep 13, 2011 10:55 am

You are self employed and issue invoices to the company. The company pays you the amount of the invoice. There are no deductions due. They are cheating you.
You pay tax based on the invoices you render to the company. The company pays tax on its receipts less expenses(including payments to you). If it pays wages to the directors it must do so under PAYE.

It looks like neither you nor your "partners" know what they're doing and unless they get professional assistance soon it will all end in tears (and HMRC fines and penalties).

If you only work for this company, it's probable that you don't qualify to be treated as self employed, which means that the company will be responsible for your tax liability as it should have applied PAYE. See an accountant to sort out your position.

by **Bras** on Tue Sep 13, 2011 1:30 pm

Thank you very much for the answer.

Just one more question, do you know what’s the rate that the company should pay for each job as taxes? Is that correct that they pay 30% for everything they collect as payment from the customers? Or it’s 26%? Or 20%? I read in the HM Revenue webpage in the section of corporation taxes that if the company profits £300,000.00 per year or more than the tax rate is 26%, or if less it’s 20%, is that right? I’m asking this question because I want to put them against the wall and ask for all the money back, they even have an accountant dealing with the company, but they don’t let me know anything, they try to hide as much information they can from me in order to pay me less, so than all I have is the their verbal statement of how much they charged each job and how much they want to pay me, that’s all, I know I’ve been cheated, but I don’t know anything about taxes and nor about businesses, that’s why I want to know about this, so I can make things clear.

Thanks again for your help.

by **section 44** on Tue Sep 13, 2011 1:48 pm

Walk away and try to find a new line of work.

It sounds like either you do not understand what is going on and/or the poeple you are in business with are taking advantage of you. Either way this doesn't sound like it is for you.

by **pawncob** on Tue Sep 13, 2011 2:26 pm

Yes the C.T. rate will be 20%, but that has no bearing on what they pay you.

by **section 44** on Tue Sep 13, 2011 2:44 pm

... unless, of course, it does because that is what the parties agreed.

by **towat** on Fri Sep 16, 2011 11:57 am

section 44 wrote:... unless, of course, it does because that is what the parties agreed.

Exactly, they can deduct any percentage from your payments if that is what was agreed, are you sure that the 30% isn't just to cover overheads and admin costs? if they were to give you 50% of each sale then they would be losing out as they have to pay the overheads out of their share. Obviously you have to be happy with the division of labour, if you are doing all the work then you deserve a lager share, alternatively set up on your own, it is not difficult just get a good local accountant who will deal with all your paperwork and red tape.

by **towat** on Fri Sep 16, 2011 12:05 pm

Also you say you get half of the PAYMENT, now if that includes VAT they will have to pay it out of their share for instance if the customer pays £120 and you get £60 the £20 VAT will come out of the other half leaveing them with £40.

And as a general rule of thumb never go into business with a friend, I think my colleagues on here will agree.