VAT - Turnover or wages?

[venderbase]

I've registered for VAT on the flat rate scheme for my vending business which runs as a partnership with my wife an I.
We have also just started up a cleaning/maid service.

The way the cleaning business works is like an agency. Clients pay us £2.50/hour, then pay the cleaner directly her hourly rate.
In this situation, only the £2.50 is part of our turnover.

Now... My wife has started doing some of the cleaning. This means she's getting paid an hourly rate direct from the client, and £2.50/hour is being paid to the business account.
Does her hourly work rate need to go on our turnover figure for applying the VAT flat rate percentage?
Or is it classed as a wage, like if she was working for another company and only needs to be applied to our year end tax returns.

Thanks

[RAL]

The way the cleaning business works is like an agency. Clients pay us £2.50/hour, then pay the cleaner directly her hourly rate.
In this situation, only the £2.50 is part of our turnover.



Have you discussed this arrangement with your accountant?

Also do your client know what it means paying directly to the cleaner?

Are those cleaner self employed?

[venderbase]

Have you discussed this arrangement with your accountant?

Also do your client know what it means paying directly to the cleaner?

Are those cleaner self employed?

I've mentioned it to my accountant. Why do you ask?

The clients contracts state the cleaners are self employed. I know of several large cleaning franchises that work in this way.

[RAL]

I've mentioned it to my accountant. Why do you ask?

The clients contracts state the cleaners are self employed. I know of several large cleaning franchises that work in this way.


That is okay as long as you have got everything covered.

[venderbase]

Well the clients know the cleaners are self employed, and the cleaners will be made to sign a contract stating they are free to work for any as they are self employed.

At the moment though, my wife is doing the cleaning, we haven't got to the stage where we need to get more cleaners.

So will here hourly rate wage need to go on my turnover for VAT?

[Marie Stein]

Hi Venderbase

In any case such as this, whether or not you account for VAT on different types of income depends on a number of factors, but the main one is what it says in the contract! I assume that you have a written agreement with the customers setting out how the arrangement works and in these cases I always recommend having such agreements checked out by a solicitor, in your case to confirm whether the partnership is acting as an agent or a principal in supplying the cleaning services. Without this, any comments that I can give are only really guidance about how the VAT rules might apply.

As stated in the previous posts, the issue is that you have to be certain that you aren't supplying teh services of teh maids as principal but as agent. From what you've said, you are acting as agent and there fore should only account for VAT on your "commission" and not what the maids receive.

You also ask about your wifes' payments and stated that they go into the business account. Now in principle it sounds to me as though you have to treat this income as being liable in VAT as well as any "commission" because presumably your wife is one of the partners, or an employee of the partnership. This suggests that the partnership is actually supplying her services as principal.

Now you might think that a simple way of avoiding including her wages as income for VAT purposes is to say that she is self-employed when carrying out the cleaning services. However this is not recommended as there are rules which HMRC apply thoroughly to prevent this sort of "articificial separation" of business activities to reduce VAT bills.

I would, however, recommend that you speak to your accountant to discuss the VAT issues in more detail and also there may be other tax or accounting issues that arise as a result of the way the partnership treats its income for VAT purposes. And as I said at the top of this post it is advisable to ask a solicitor to review your agreement/contract to be sure that it reflects your understanding of the business arrangements.

Marie
VAT Exchange Limited

[venderbase]

You also ask about your wifes' payments and stated that they go into the business account. Now in principle it sounds to me as though you have to treat this income as being liable in VAT as well as any "commission" because presumably your wife is one of the partners, or an employee of the partnership. This suggests that the partnership is actually supplying her services as principal.


Thanks very much for your detailed reply.

My wifes payment gets paid to her in cash. Only the commission payment gets paid into the business account.
My wife is one of the partners, so if there is going to be a fine line in this, I might as well pay the vat on her wages too, as using the flat rate I get a very low rate for my main business and can use the same rate for anything else.