UK sole trader employing foreign citizen to work remotely as freelancer

[kakolukia]

Hi

I'm a freelancer living and working in the UK, doing freelancing as a side hustle after my full time job. I want to have a foreign freelancer (Gulf state) to remotely work for me as I'm taking a number of projects that I can't fit with my schedule, so thinking of using the other freelancer to support this. The other freelancer is a resident of the state he's working from, and he's not a resident of the UK.

Few questions please:
What do I need to do from my end, and what does the other person need to do from his end, to enable this?

Do I need to manage any PAYE/tax obligations for the other freelancer, or does he do that all on his end based on his tax obligations for the state he resides in? Do I need to pay tax or NIC at all, given that he's not a UK resident and not working from the UK?

Do I include the payments I make to him as expenses on my self assessment?

Thanks.

 

[paulears]

I'd simply receive a bill from overseas, and pay it. He is not an employee of yours and subject to UK tax anyway, and the tax affairs of his country are his problem. Have I misunderstood the problem?

 

[Joyous]

On the assumption that the Gulf freelancer is entering into a contract for services rather than a contract of service then he is just another supplier who you'll pay when he submits his invoice - and yes, you will certainly include his invoices as a cost when calculating your profits for self assessment.

You only operate PAYE for those that work for you on an employer/employee basis and employing overseas staff is a whole different can of worms ?

 

[Newchodge]

It makes life extremely difficult if you employ someone in a foreign country. The simplest would be for them to work as a freelancer and invoice you for work done. Payments to a freelancer for work for your business should be an allowable expense.

 

[Frank the Insurance guy]

Also worth noting, that if you are effectively "sub-contracting" your work to another freelancer, you are the contracted party with your client. As such you will be the one responsible for any poor work/services performed by the freelancer.

If he does something wrong, which impacts your client - your client will pursue you. How confident are you in pursuing the freelancer overseas?

If going down this route, I would suggest finding a UK freelancer - at least you will be able to pursue them in the UK courts if they do something wrong.

PS. As its a side hustle, I assume you have no insurance? If you did, you would need to advise Insurers that some of the work is outsourced overseas.

 

[kakolukia]

Many thanks all for the prompt and helpful replies, much appreciated.

Yes the plan to use his services as a freelancer and pay him for invoiced hours/work. Good to know I don't need to operate PAYE in this scenario, less headache for me ?

I've got a strong trust relationship with the freelancer, so I'm pretty confident with using his services ?

We're not using a freelance platform or anything fancy, so my payments to him will be through bank transfers (or a method with good exchange rates). In this case is it sufficient to just ask him for a simple email document as the invoice? I want to keep evidence of the payment expense, but not sure what are the normally acceptable forms of invoices (I'm relatively new to the whole self employment thing ?).

Thanks again.

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[Joyous]

In this case is it sufficient to just ask him for a simple email document as the invoice? I want to keep evidence of the payment expense, but not sure what are the normally acceptable forms of invoices (I'm relatively new to the whole self employment thing ?).

HMRC have issue guidance on what needs to be included on an invoice. It's written from your point of view but will apply just as well to your freelancer.

 

[kakolukia]

It's written from your point of view but will apply just as well to your freelancer.

Awesome many thanks.

With regards to the unique ID, is that relating to the person (e.g, national insurance number) or the business (UTR in my case)? Given we're both effectively sole traders, for company name do we just include our personal names?

Thanks.

 

[paulears]

Fred Smith Consulting, their address, phone making it clear they're in a foreign country, description - the stuff any person or business entity puts on invoice works fine - as long as they are bona fide - so if they can easily be googled that works - plus of course you have the banking evidence you paid them. From the risk perspective, I'd say money laundering would be more critical than their employment status - when you invoice a client in the UK, you don't give the UTR or NI details, just a bill and they pay it. I constantly get charged by chinese suppliers I've never dealt with before and I might pay by a variety of means - including international bank transfers. It could be a small 1 man band or bigger, but I get goods, pay for shipping and that kind of thing. What exactly is worrying you that might happen? Are we talking about a huge amount of money? I'm guessing you're not VAT registered, but even that is easy to deal with if the point of supply is outside the country.

 

[kakolukia]

Fred Smith Consulting, their address, phone making it clear they're in a foreign country, description - the stuff any person or business entity puts on invoice works fine - as long as they are bona fide - so if they can easily be googled that works - plus of course you have the banking evidence you paid them. From the risk perspective, I'd say money laundering would be more critical than their employment status - when you invoice a client in the UK, you don't give the UTR or NI details, just a bill and they pay it. I constantly get charged by chinese suppliers I've never dealt with before and I might pay by a variety of means - including international bank transfers. It could be a small 1 man band or bigger, but I get goods, pay for shipping and that kind of thing. What exactly is worrying you that might happen? Are we talking about a huge amount of money? I'm guessing you're not VAT registered, but even that is easy to deal with if the point of supply is outside the country.

We're talking about £1500-2000 payments per month. It's not a worry as such but want to make sure I've got the correct required documents for my self assessment (not sure how often HMRC requests expense documents), and wasn't sure what the unique ID being referred to was ?. You're right I'm not VAT registered.

Thanks

 

[Newchodge]

You're right I'm not VAT registered.

If you are paying a freelancer £2,000 per month, you must be receiving in the region of £8,000 per month, which puts you over the VAT registration limit of £85,000 in any 12 month rolling period. You need to keep an eye on it.

 

[kakolukia]

If you are paying a freelancer £2,000 per month, you must be receiving in the region of £8,000 per month, which puts you over the VAT registration limit of £85,000 in any 12 month rolling period. You need to keep an eye on it.

I estimate to receive around £5000-£5500 per month, which sounds like it puts me under the VAT limit. So it's about 70%-30% split with the freelancer (i.e when paying £1500)

 

[GBLE LTD]

I estimate to receive around £5000-£5500 per month, which sounds like it puts me under the VAT limit. So it's about 70%-30% split with the freelancer (i.e when paying £1500)

For the moment yes. However, pointing out for emphasis though it was already mentioned, the VAT threshold is on a *rolling* basis not an accounting period accumulation. Just something to be mindful of should you make a lot more in some months.

As mentioned above, the freelancer would simply invoice you and the tax would be their problem.

If you have any further queries, feel free to reach out. I'm a UK accountant and an initial conversation is no charge.

 

[kakolukia]

For the moment yes. However, pointing out for emphasis though it was already mentioned, the VAT threshold is on a *rolling* basis not an accounting period accumulation. Just something to be mindful of should you make a lot more in some months.

As mentioned above, the freelancer would simply invoice you and the tax would be their problem.

If you have any further queries, feel free to reach out. I'm a UK accountant and an initial conversation is no charge.

Will do ?

Thanks everyone for the valuable advice ?

 

[Joyous]

Awesome many thanks.

With regards to the unique ID, is that relating to the person (e.g, national insurance number) or the business (UTR in my case)? Given we're both effectively sole traders, for company name do we just include our personal names?

Thanks.

The unique ID refers to the invoice number. It must be unique to that particular invoice, i.e. not duplicated. So if somebody asks to see (say) invoice 123, you should be able to go straight to it and not have to guess which invoice 123 they're talking about.

 

[kakolukia]

The unique ID refers to the invoice number. It must be unique to that particular invoice, i.e. not duplicated. So if somebody asks to see (say) invoice 123, you should be able to go straight to it and not have to guess which invoice 123 they're talking about.

Gotcha thanks, that makes sense ?

 

[Newchodge]

The unique ID refers to the invoice number. It must be unique to that particular invoice, i.e. not duplicated. So if somebody asks to see (say) invoice 123, you should be able to go straight to it and not have to guess which invoice 123 they're talking about.

Bearing in mind that it is the freelancer, not the OP, who issues the invoice to the OP.

 

[Joyous]

Bearing in mind that it is the freelancer, not the OP, who issues the invoice to the OP.

As I said, the invoicing requirements can apply to the OP and the freelancer. My point is that it's always best to get a proper invoice rather than a random email requesting payment.

 

[eteb3]

The unique ID refers to the invoice number.

If there are not many invoices, I use the date and then a two-digit index number, eg 24011801

This saves keeping a sequential record: ime if you’re not [if your freelancer isn’t] invoicing daily it’s a pain to run numbers sequentially, because you need an index to translate the serial number to the date. This way the date is the reference.

@Joyous, any issues with that?

 

[GLAbusiness]

I use FreeAgent to generate invoices. I use the option to generate sequential invoices within each project.

I know of other businesses who use the date method which eteb3 mentioned.

 

[Bobbo]

I estimate to receive around £5000-£5500 per month, which sounds like it puts me under the VAT limit. So it's about 70%-30% split with the freelancer (i.e when paying £1500)

If you are purchasing services from overseas you cannot forget about the reverse charge when considering the VAT registration threshold. Assuming the supplies from the freelancer are supplies which would be taxable were they supplied in the UK.

I.e. you add the value of services purchased from overseas to your own income for the month. So 5,500 invoiced by you plus 2,000 paid by you to overseas freelancer becomes 7,500 for that month when considering the VAT threshold.