How to deal with a friend doing some work for my company

[ceebeepps]

To be on the safe side, I would separate the whole friend thing and treat as a business transaction. You are subbing out the work, so one would assume that there will be a formal contract and insurance, you will get an invoice and you charge that invoice on, and your own contract with your client allows subbing. As the invoice is COS, you will technically make a little on the vat you have charged to your client versus FR 13.5% you pay (first year), and pay CT on that profit, but that will mean that you have no responsibility for the guys self assessment, EL, and taxes. Outside of that, with a business hat on I would consider it doing someone a "favour" which can bite you on the behind (why should they make more than you by not following rules & regs & taxes?).
Personally, I don't do "favours" in business. I would add a "finders fee" too (by way of reducing subbie charge) so you are getting something out of it.

[jamesbrown]

If your friend is not trading as a limited company and is doing this as self-employed but in full-time employment, and they don't declare/pay tax on the income, could the tax bill come back to your company for not deducting at source. I would be wary and ensure a written contract is in place to protect yourself.

I have only ever done this with the safety of subcontracting to another limited company, where there is a distinction between person and business.

No, you can subcontract a self-employed person. A self-employed person is responsible for paying their own taxes via their SATR. However, if the relationship looks more like one of employment (i.e. supervision, direction and control) then, yes, there is an obligation to deduct at source. Otherwise, there's also the new reporting requirement (see above). There's also a specific scheme for the construction industry.

[FarmerPalmer]

If your friend is not trading as a limited company and is doing this as self-employed but in full-time employment, and they don't declare/pay tax on the income, could the tax bill come back to your company for not deducting at source. I would be wary and ensure a written contract is in place to protect yourself.

I have only ever done this with the safety of subcontracting to another limited company, where there is a distinction between person and business.

[TheCoconutDog]

How to deal with a friend doing some work for my company

Stick all of the stuff you mentioned in a proper contract and sign it. There's templates on the IPSE website if you're a member.

[TedStriker]

We're talking under a thousand pounds but this could happen a few times so maybe £2500 max in any year. I wasn't aware of the reporting obligations but will take a look through and decide what to do.

It may well work out better/simpler all round just to take the money as wages/dividends in the way I usually would as if I'd done the work myself and pay him cash out of my pocket. In the end this will probably work out neutral as the CT I'll pay on it would be not far off the amount he'd have to pay when he declared the income at the end of the tax year anyway, in fact it will probably be a little lower.

Thanks for your help, guys!

[jamesbrown]

There are no contract problems between myself, the client and the supplier. We have worked together/known each other for many years and the client is more than happy for my friend to do the work (we were all employees/colleagues/friends of a now in administration major company for many years).

Did take a look at the site and I reckon I'd be fine on any investigation as:

He has a permanent job
I do not tell him when to do the work
I do not tell him how to do the work
He provides his own equipment for doing the work (laptop etc)

There is no monetary profit for me, it's more a case that it would cost me a fortune to visit and do the work myself plus it's a friend who I'm helping out with some income which he sorely needs. Just want to make sure I'm not risking putting myself in any hot water with Hector for trying to help out a friend with some income.

I can imagine the hard nosed businessmen saying why bother but I'd like to think that altruism isn't completely dead!

Ted

Fair enough, and good on you. Just be aware of your responsibilities. You probably already have EL insurance. I think the biggest headache is going to be the new reporting requirements; I haven't had to deal with these myself yet, but subcontractors are within scope if you don't operate PAYE (this means reporting some basic info. every quarter, including after they have stopped working for you).

[northernladuk]

How much are we talking here? A few hundred quid? A few thousand?

[TedStriker]

No problem, providing your contract allows for subcontracting. If it's a small task, you could just put together a Purchase Order with T&C, rather than a full-blown contract. Make sure you have EL insurance. Yes, it's a business expense, but be mindful of the VAT situation if you're on the FRS. Also, you may be an employment intermediary for the purposes of the new reporting requirements. Given the significant hassle, you'd probably only want to consider this if you had a worthwhile margin or you were going to retain a client that you'd otherwise lose.

There are no contract problems between myself, the client and the supplier. We have worked together/known each other for many years and the client is more than happy for my friend to do the work (we were all employees/colleagues/friends of a now in administration major company for many years).

Did take a look at the site and I reckon I'd be fine on any investigation as:

He has a permanent job
I do not tell him when to do the work
I do not tell him how to do the work
He provides his own equipment for doing the work (laptop etc)

There is no monetary profit for me, it's more a case that it would cost me a fortune to visit and do the work myself plus it's a friend who I'm helping out with some income which he sorely needs. Just want to make sure I'm not risking putting myself in any hot water with Hector for trying to help out a friend with some income.

I can imagine the hard nosed businessmen saying why bother but I'd like to think that altruism isn't completely dead!

Ted

[jamesbrown]

My friend (supplier) is an individual not even a sole trader so definitely not VAT registered. My Ltd is on the FRS - in that case I think I make a slight profit as I'll charge the client VAT on the job but will only need to pay 13.5% (first year trading) to HMRC - right?

My main concern was over tax implications as I'm paying 'him' without deductions thereby effectively removing money from the business with no deductions. Am I responsible for him declaring the income?

Thanks for your help

Yes, you won't lose out on VAT if the sole trader isn't VAT registered. Yes, you potentially are liable for taxing at source, but only if the relationship is effectively one of employment, and this almost certainly isn't the case (you won't be supervising or otherwise directing or controlling their activities, right?). Yes, there are reporting requirements (see above).

[TedStriker]

The invoice to your client goes in your company accounts as a sale.
Your supplier goes in your company accounts as cost of sales.
Therefore no profit, so no CT to pay.

You may lose out on VAT though if registered as FRS, as you pay a % of sales, but need to pay VAT to your supplier (if registered).

My friend (supplier) is an individual not even a sole trader so definitely not VAT registered. My Ltd is on the FRS - in that case I think I make a slight profit as I'll charge the client VAT on the job but will only need to pay 13.5% (first year trading) to HMRC - right?

My main concern was over tax implications as I'm paying 'him' without deductions thereby effectively removing money from the business with no deductions. Am I responsible for him declaring the income?

Thanks for your help

[jamesbrown]

Would this not be offset by the invoice he sends to me for the work? I'd have thought that would be a business expense?

As I understand it (and yes, I'm new to the Ltd Co game), there would only be an overall profit if I was charging him out at a higher rate than I'm paying him?

Thanks for the reply

No problem, providing your contract allows for subcontracting. If it's a small task, you could just put together a Purchase Order with T&C, rather than a full-blown contract. Make sure you have EL insurance. Yes, it's a business expense, but be mindful of the VAT situation if you're on the FRS. Also, you may be an employment intermediary for the purposes of the new reporting requirements. Given the significant hassle, you'd probably only want to consider this if you had a worthwhile margin or you were going to retain a client that you'd otherwise lose.

[FarmerPalmer]

The invoice to your client goes in your company accounts as a sale.
Your supplier goes in your company accounts as cost of sales.
Therefore no profit, so no CT to pay.

You may lose out on VAT though if registered as FRS, as you pay a % of sales, but need to pay VAT to your supplier (if registered).

[TedStriker]

Would this not be offset by the invoice he sends to me for the work? I'd have thought that would be a business expense?

As I understand it (and yes, I'm new to the Ltd Co game), there would only be an overall profit if I was charging him out at a higher rate than I'm paying him?

Thanks for the reply

[northernladuk]

Surely you will be losing out as you you will be paying CT on the profits?

[TedStriker]

Hi,

Situation is I have my own Ltd Co. that I work contracts through as a network engineer. I also do some support work for another company on an ad hoc basis through my Ltd. I am not available to do some of this work but my friend is and I was just wondering what the implications are for tax etc.

We have agreed a sum for the task and he will send me an invoice in his own name (he is a permanent employee of an unrelated company and will be doing this in his spare time). My company will not be making any profit out of the work - I'll be paying him exactly what I invoice the client (excluding VAT I assume?).

I guess another way of phrasing it is that I'm subcontracting work out to an individual and need to know how to best deal with that.

Thanks for any thoughts!

Ted.