Paying Self-Employed people - Advice needed

[whitershores]

Hi my company employs freelancers (self employed) people, and we would like to know how can we pay them, and what information/documents do we need from them for the tax office for our tax returns?

I am asking, as obviously, their pay is an expense for the company that would likely to be deducted from our tax, however I assume that we need some kind of proof for the Tax office, that we have Indeed paid them that amount so we can deduct that as an essential business expense?

Would it need to be an invoice, or some kind of receipt, and what details would need to be featured on such an 'invoice' for it to be legally acceptable for the tax office?

 

[elaine@cheapaccounting]

An invoice is needed from each of them.

Details should include:

date
services provided
company / business name
address
co reg no (if applicable)
vat reg no (if applicable)
etc

Also make sure you have a contract in place with each of them to ensure that it is a service provided and they are liable for any taxes etc.

 

[CassioAcc]

If you are in the construction industry then there are other rules that apply.

 

[uksel]

that's right, you will have to register for the CIS scheme and deduct their tax from source, otherwise you will be liable for the tax i think

if they don't give you a UTR (Unique Tax Reference) number then you will need to deduct at the BR1 rate which is 30 - 33.33%. you will also need to ring the CIS scheme to confirm the number is active and in use

i'd get someone more experience to confirm the above but i think it is reasonably accurate

 

[yorkshirejames]

What is the nature of the work that these people are undertaking? As others have said, construction has its own rules, so does acting/modelling, and professional services (finance, IT, law, etc etc).

Are these people genuinely freelancers, or could it be said that in reality they are your employees? Be wary with this.

 

[whitershores]

We are an online based company, our services include interactive-multimedia, flash sites, 3D animation etc... you can check out our site at:

www whitershores com ( I can't pose real links as I have less than 15 posts...)

No, these are genuine freelancers, they don't work at the office, and work on a commission only basis, as per job, sometimes laid off for months. The services include 'Design', 'IT' and 'Sales'. No construction labour or anything like that.

Now someone mentioned that i have to deduct tax before I pay them, now I am pretty sure that isn't how it should be if they are self-employed, as then when they fill in their self-assessment form then thats when they are supposed to declare their earnings and pay their own tax...

As they are just individuals, they don't have any VAT/company numbers or anything like that, their invoices are going to look really 'bare bone' with just their name and address on it, my question was that if that is really enough for the tax office, as a proof as a 'essential business expense' outgoing so we can reduce our own tax ??

 

[maidofkent]

Yes,

If they produce an invoice with their name and address, and saying what it's for: consultancy fees, professional services, etc, that will be sufficient.

They should date it, put a value on it, of course, but that will be ok.

And no, you won't have to deduct their tax. Pay them the gross amount, which will be the invoice total, and they sort their own taxes out at the end of year.

That comment about deducting tax was said in the context of the construction industry, which has different rules.

MoK

 

[elaine@cheapaccounting]

You do not need to deduct tax and a 'bare bones' invoice will be sufficient.

 

[whitershores]

Thanks that is very helpful. I mean my concern was that if there is nothing besides a name/address, it would be easy for someone to make up bogus invoices for nonexistent people just to reclaim their tax...

I was thinking that maybe their NI number should be included at least, as some kind of unique reference for the tax office for them to be able to chase them up?

Only issue is that if I use someone from abroad, then I couldn't use the NI number... Any ideas on that?

 

[elaine@cheapaccounting]

With all due respect even getting an NI numbers means nothing unless you are going to check each one is valid.

If you operate good processes e.g. get a proof of id, have a contract in place, get invoices, pay direct into their bank account so that your have bank account details I think you will have done as much as you can.

 

[spinningdoc]

I'm sure Elaine will know more about this, but as a freelancer with a regular (IE a couple of days a week) work over some months with a PR agency, they also asked me to sign a declaration that I didn't consider myself employed by them; otherwise they could've been liable for paying me holiday pay, sickness, NI, etc. I'm perfectly happy to work on a fee basis and sort all that out for myself, so it was fine with me. I think that only applies for long term jobs though.

Matt

 

[elaine@cheapaccounting]

Matt - yes this is normally included in the contract for the services being provided including payment terms, right of substitution etc. In fact it is one of the reasons that many agencies will only work with limited companies and not a self employed person.

 

[BrianH]

Have a look at www.blueintellect.com , this company provides services to freelancers where they act as 3rd party paying the Freelancers, You pay Blue Intellect.

They do this for a number of companies in the graphic design agency field, and complies with all the Inland Revenue legislation.

Howard Rissen is person to ask for 01923 858650 to understand more

 

[yorkshirejames]

One item of caution. If there is one supplier who, over the course of a year, invoices you more than £64,000, then there is an obligation on YOU to check that they are VAT registered.

I always advise people not to get involved in the affairs of their freelancers (can of worms and all) but you might like to say to them that it would be advisable they get the services of an accountant onboard.

 

[Kent Accountant]

One item of caution. If there is one supplier who, over the course of a year, invoices you more than £64,000, then there is an obligation on YOU to check that they are VAT registered..

I am not aware of that obligation :|

 

[Alpha]

One item of caution. If there is one supplier who, over the course of a year, invoices you more than £64,000, then there is an obligation on YOU to check that they are VAT registered.

I always advise people not to get involved in the affairs of their freelancers (can of worms and all) but you might like to say to them that it would be advisable they get the services of an accountant onboard.

Can you refer us to the relevant legislation as this is not something I've ever come across either:|:|

 

[dp0848]

Can you refer us to the relevant legislation as this is not something I've ever come across either:|:|

Nor me, I'd be interested in reading more about this.

 

[Jenni384]

Nor me, I'd be interested in reading more about this.

And another one

 

[Jimer]

I would in this positon not think of these as employee in any way and put their own tax position out of your mind. Think of their invoices as another purchase invoice and, as was said above, as long as you have name, address and details of service(s) provided everything should be fine.
I would also make a record of how and when they were paid (written on their invoice for example).
You are not responsible for their declaration of income or tax sceanario.

Jimer

 

[yorkshirejames]

deleted message

 

[elaine@cheapaccounting]

Sections 687, 688 and 688A of the Income Tax (Earnings and Pensions) Act 2003 (as amended).

If it is of use to others, I'm happy to provide a little more detail. If we want to realistically state that perhaps the chances of HMRC using these powers are slight, we can just leave it until such time as someone has this as an issue.

Hi

I can't find the reference to checking if VAT registered - might you have only had a quick look at these sections on HMRC web site.

Have you got the exact section please and a link to HMRC web site would be really useful. Thanks

 

[yorkshirejames]

Elaine, we're at cross purposes, I thought you (and the others) were referring to the company using the freelancers possibly having a tax liability.

The "know your supplier" issue is something I cannot find a hard and fast rule for, so with my not having sufficient time to research further, I will clarify my previous statement and say that it is merely an issue of good practice and not an obligation.

I have however come across this before - if I think of something I will repost.

I was actually getting two threads confused I think - please accept my apologies, its been one of those days.