Self Employed - How do i pay "wages"

[highland]

I am self employed, but use a couple of people to do odd jobs for me twice a week. I pay both of them £100 in cash per week (so they can stay under the £5075 threshold) question is, how am i supposed to show this through my books? Should i ask them to invoice me weekly or is there another way?

thanks in advance

 

[paulears]

depends if you wish to be legit or not? You should register with HMRC as an employer and they'll send you a pack with a CD, which then works out how much tax and NI you need to pay. The employers NI is pretty steep and that's for you to pay. You simply type in the amount you want to pay them and it tells you what it works out to. I did this for a year and it was a total pain, and cost me far more than I'd imagined for the NI contribution.

If you just pay them as you intend, then if at some point HMRC notice and look into it properly, they may well decide to slam you for the unpaid NI and any tax they think should have been paid.

Plenty of people do back door payments, but you have no idea how much they really earn, only what they tell you - so you could end up having to pay what they didn't, if you see what I mean.

 

[Hydra]

Forget what the law may state, HMRC do actually take a pragmatic approach.

If the 2 people are getting roughly 5k p.a and are not in receipt of benefits, tax credits etc, then put it through as wages, and claim it legitimately as a business expense.

If you register under a PAYE scheme you are automatically open to lowly trained PAYE compliance personnel who want to hit you for fines to justify their existence.

It is all down to whether or not you are aufait with the two peoples circumstances. One of my clients employs his wife and his student son (effectively 10k a year tax write off), with no PAYE registration nor anything else. All he has to do is justify that they do work and that 5k each is reasonable. He knows neither claims via DHSS nor tax credits, and as he is a 40% tax payer this little bookkeeping exercise saves him in excess of 4k per annum.

Officiallly he should register as an employer blah balah blah, but in his case the first point of enquiry would be an Inspector of Taxes and not a muppet sent out to generate revenue for the compliance team. And guess what, under the framework of tx, the inspector has discretion that the muppets don't have.
If you have concerns that your "employees" have other sources of income, then yes, apply the PAYE procedures, and DO NOT RELY on invoicing from them. If you are their only client, and they can demonstrate you should reasonably have know this, then you are liable for some "spank the boyo" money.
There is another way around it btw, but wont post in an open forum, as the relationship you have with these people may govern its applicability.

 

[elaine@cheapaccounting]

At this level of pay you should register for PAYE, provide a pay slip to the workers, submit employer returns etc.

Full details here ....

As an employer you have a legal obligation to operate PAYE on the payments you make to your employees if their earnings reach the National Insurance Lower Earnings Limit (LEL). For the tax year 2010-11 this is £97 a week, £421 a month or £5,044 a year.


http://www.hmrc.gov.uk/paye/intro/basics.htm


I fail to see why anyone would want to run a legitimate business and not adhere to their legal duties

 

[David Griffiths]

I am self employed, but use a couple of people to do odd jobs for me twice a week. I pay both of them £100 in cash per week (so they can stay under the £5075 threshold) question is, how am i supposed to show this through my books? Should i ask them to invoice me weekly or is there another way?

thanks in advance

Er, £100 per week is actually over the £5,075 threshold! I suspect that you might mean the £5,044 threshold that's the lower earnings limit (LEL) for NI. That's measured at £97 per week, not accumulated annually.

That means that you are already over it

 

[Tom McClelland]

This sounds like employment as far as I can tell from the minimal facts supplied, so the "workers" giving you invoices wouldn't change the facts of the case. It is very likely that you need to register with HMRC as an employer. It really isn't particularly hard to do so. You should be aware that employees are also entitled to holiday pay at a statutory minimum rate of 12.1%, and you also have obligations if they were to become sick.

 

[MASSEY]

What if he just says they are sub contractors. If he get's invoices and pay's them what's the problem?

I would say the best route for the op is to treat them a sub contractor's. Last thing he want's is to class a couple of odd job men as employee's.

 

[MyAccountantOnline]

What if he just says they are sub contractors. If he get's invoices and pay's them what's the problem?

I would say the best route for the op is to treat them a sub contractor's. Last thing he want's is to class a couple of odd job men as employee's.

You cant just call an employee a subcontractor and avoid paying tax and NI, and all of the obligations which go with being an employer - if you could a lot more people would

You have to look at the exact arrangements between the parties and see if the contract is that of an employed or self employed contractor.

 

[Tom McClelland]

What if he just says they are sub contractors. If he get's invoices and pay's them what's the problem?

I would say the best route for the op is to treat them a sub contractor's. Last thing he want's is to class a couple of odd job men as employee's.

What people "say" has no effect on the facts of the case. If they look like employees to HMRC tests of employment then no amount of claiming that they are subbies would save him. The issue of invoices is not a strong indicator against employment.

Furthermore, if the odd jobs look like construction work he might even make his situation worse by claiming that they are subbies. CIS compliance is far more unpleasant than PAYE compliance.

 

[MyAccountantOnline]

HMRC provide an online employment status indicator which is a very useful guide when looking at whether someone is employed or self employed.

 

[KM-Tiger]

I'd be very inclined to see your accountant and get this sorted properly now.

Your risk is that it will come back and bite you later. It's also a bit of a slippery slope - pay people cash in hand and they expect that to continue, and should you employ a third person they would expect to be treated the same.

 

[elaine@cheapaccounting]

What if he just says they are sub contractors. If he get's invoices and pay's them what's the problem?

I would say the best route for the op is to treat them a sub contractor's. Last thing he want's is to class a couple of odd job men as employee's.

Have a read of this ....

Freelancers are the key to growth in 2011 but BEWARE is that really a freelancer in your business?

 

[paulears]

My brother in law WAS a tax inspector, made redundant in the last staff shedding exercise, and my sister is currently a senior inspector, probably going to be made redundant in the next round - and the hope that any senior revenue people would even look at a case like this is frankly "in the wind". This would be dealt with by a 17/20 year old following the rule book. Black and White. Discretion very unlikely. They probably have the same guidance notes as people on here have been quoting.

 

[Strontium Dog]

I dont know why the OP is so against registering as an employer.

Even if he gets an accountant to run the payroll for him its probs only going to cost him about 3% of the payroll figure in fees.

Against this he gets certainty of his position, and the employees get their national insurance record credited with a years contributions.

Everyones a winner.