We were asked:
“We are taking over the running of a local community event. We ran it once before as a CIC, but this was complicated in terms of admin and we want to do it as simply as possible. It’s pretty simple. People pay a fee. We have to pay the space hire and the person who facilitates, and probably some other small expenses now and then. We also have to pay ourselves. We’re both self-employed, as is the facilitator. We’d like to open a joint account to do this (though a lot of it will be in cash). What needs to happen in accounting terms? We’re assuming that we need to produce some form of independent accounts (obviously our income will go through our own accounts). Many thanks.”
And our reply:
I agree, a CIC is necessarily complicated; unless there are external funds coming in by way of grant etc, then its not advisable.
I have some suggestions:
(a) one or other of you (person 1) run it through your accounts, pay the costs, take the money, and then split any residue 50:50 with person 2, person 2 invoicing for that share.
Advantages – Simplicity
Disadvantages – Legal liability sits with person A. All the turnover counts to person A and there is the risk this, when aggregated with their other income, approaches the vat threshold, £83k at present.
(b) set up a partnership in your joint names. Will need a bank account and a simple partnership agreement, which a lawyer or accountant could draw up for you quite easily
Advantages – separate accountability. Split of legal liability between each partner. Separate vat threshold.
Disadvantages – would need separate accounts and tax return each year (say £300 or so) and make your personal tax returns a little more complex (extra page needed for partnership involvements)
(c) set up a LLP (limited liability partnership).
Advantages and disadvantages similar to (b) except you get full limited liability and protection personally from debts but the compliance cost will be a bit higher, say £500 or so.
I would not recommend a limited company, as it wouldn’t give you much over (c) other than extra admin, and I wouldn’t recommend a charity type structure, eg trust, as the project seems to be community rather than charity.
All in all I would suggest (b) unless you are very worried about liability in which case (c)
Hope these thoughts help