Commission payments for non-employees?

[jxm28788]

We are selling an expensive product, and want to pay people for sales leads (if the lead results in a sale).

My question is how we best pay them and how we account for the payments in our accounts.

If they were a business we could ask them to invoice us and then pay the invoice. But how do we do it for individuals, who are not working via a business and are not our employees?

 

[Newchodge]

They are either your employees or they are self employed and invoice you.

 

[AlanJ1]

We are selling an expensive product, and want to pay people for sales leads (if the lead results in a sale).

My question is how we best pay them and how we account for the payments in our accounts.

If they were a business we could ask them to invoice us and then pay the invoice. But how do we do it for individuals, who are not working via a business and are not our employees?

Ask them to invoice you, they will need to pay the tax themselves via self employment etc.

 

[jxm28788]

They are either your employees or they are self employed and invoice you.

Well they won't be employees, but what if they're not self employed either? Or do they just declare themselves self-employed for the purposes of receiving the commission?

Can an individual, whether they are unemployed, or work as an employee for an unrelated company and are doing this in their spare time just invoice us?

Is there any requirements for the invoice or can they just knock something together in word with their name and address, date, description, amount and the word "invoice" on it?

 

[Newchodge]

Well they won't be employees, but what if they're not self employed either? Or do they just declare themselves self-employed for the purposes of receiving the commission?

Can an individual, whether they are unemployed, or work as an employee for an unrelated company and are doing this in their spare time just invoice us?

Is there any requirements for the invoice or can they just knock something together in word with their name and address, date, description, amount and the word "invoice" on it?

They cannot do paid work unles they are an employee (or worker) or are self employed. If they are doing paid work and are not employed, they are doing it self employed. There are accounting rules on what constitutes an invoice.

Your bigger problem may be whether they are, in reality, an employee or worker.

 

[jxm28788]

They cannot do paid work unles they are an employee (or worker) or are self employed. If they are doing paid work and are not employed, they are doing it self employed. There are accounting rules on what constitutes an invoice.

Your bigger problem may be whether they are, in reality, an employee or worker.

They would not be a working for us. They're not going to be going out making sales calls or anything else formal. It is more people I know that just might happen to know someone that might be interested in the product. In reality it would mostly be one-offs, it's unlikely that anyone will bring in more than one lead.

How do the big companies do this with their "refer a friend" type deals? I guess some offer credits against your services, but others actually offer "cash" or vouchers. In this case they are almost always going to be consumers, and not self employed.

 

[Gyumri]

An invoice is simply a demand for payment, but it also serves as evidence of any commission paid, so that it can be properly accounted for as a cost of sale.

There are certain criteria to satisfy before one could say that a casual commission agent is an employee and from what the OP says he is not employing anybody.

On the other hand he can't just dole out "commission" for leads without obtaining an invoice or receipts for such payments, which must include the persons name and address etc.

If they are bona fide business expenses then whether the recipients are properly accounting for such income is not the OP's concern, as long as he's paying his taxes.

 

[Peter Cooper]

This is a curiously messy area at the best of times. It largely depends on the nature of the relationship. If these are random individuals for whom making referrals is not part of their day to day work or business, they are likely not business entities with any real capacity to raise an invoice. Nonetheless, such individuals will likely need to pay tax thanks to the "miscellaneous income sweep-up provisions."

Consider the situation where a magazine pays someone, say, £2000 for some interesting facts about a topical news story. That person isn't a business entity expected to raise an invoice, but at the same time, the payment is not a prize or gift, and will likely be caught up as "miscellaneous income" they need to declare (if it's over £1k in a tax year).

 

[jxm28788]

This is a curiously messy area at the best of times. It largely depends on the nature of the relationship. If these are random individuals for whom making referrals is not part of their day to day work or business, they are likely not business entities with any real capacity to raise an invoice. Nonetheless, such individuals will likely need to pay tax thanks to the "miscellaneous income sweep-up provisions."

Consider the situation where a magazine pays someone, say, £2000 for some interesting facts about a topical news story. That person isn't a business entity expected to raise an invoice, but at the same time, the payment is not a prize or gift, and will likely be caught up as "miscellaneous income" they need to declare (if it's over £1k in a tax year).

ok, but I'm less bothered about their tax affairs, that's a "them" problem, and more bothered about how I account for it at my end. ie. when HMRC does an audit and says "where did that £200 go out of the bank account"

 

[Paul Kelly ICHYB]

How will you be tracking?

What you are looking at is affiliate selling, which is relatively common.

 

[jxm28788]

How will you be tracking?

What you are looking at is affiliate selling, which is relatively common.

It won't be online, so I don't know, I could make a list in Excel or whatever. But then the point is how do I prove that I gave them the money and didn't just take it out myself and put it in my own pocket?

 

[Paul Kelly ICHYB]

You need to record their details and payments. You could create a self billing invoice - speak to your accountant about that.

 

[Bobbo]

how do I prove that I gave them the money and didn't just take it out myself and put it in my own pocket?

Bank transfer to their account rather than withdrawing cash from an ATM is probably the easiest way to achieve that.