Employing someone/sub-contracting
Discussion
Firstly, I will admit to being very naive in these matters so if this seems a numpty question, please bear with me.
My wife started her own business (sole trader) 18 months ago. It's now reached a point where there aren't enough hours in the day and she is having to turn work away. We've spoke about taking someone on to cover the shortfall. They would have to be self-employed and she would put the work their way, taking around a 30%ish cut of the hourly rate. (No figures worked out yet, that's just an initial thought)
Now we've no idea what liabilities she'd have. What protection would she need and how do we stop the person just nicking the client and taking all the payment for themselves.
My wife started her own business (sole trader) 18 months ago. It's now reached a point where there aren't enough hours in the day and she is having to turn work away. We've spoke about taking someone on to cover the shortfall. They would have to be self-employed and she would put the work their way, taking around a 30%ish cut of the hourly rate. (No figures worked out yet, that's just an initial thought)
Now we've no idea what liabilities she'd have. What protection would she need and how do we stop the person just nicking the client and taking all the payment for themselves.
Will this person be working full time for your wife or will they be free to take on other work as well?
If it's the former then they probably need to be an actual employee of your wife's company rather than a subcontractor or HMRC may decide you are avoiding paying NI. Their employment contract can then protect you (to a certain extent) from using the knowledge they've gained in the job to go off solo and steal your wife's clients.
If it's the latter then you will need some form of formal non-compete agreement in place with them.
Having said all that, making a non-complete case stick is very difficult, unless they use specific information gained whilst working for you (stealing the design of one of your products or something). At some point it does come down to you having to trust people!
If it's the former then they probably need to be an actual employee of your wife's company rather than a subcontractor or HMRC may decide you are avoiding paying NI. Their employment contract can then protect you (to a certain extent) from using the knowledge they've gained in the job to go off solo and steal your wife's clients.
If it's the latter then you will need some form of formal non-compete agreement in place with them.
Having said all that, making a non-complete case stick is very difficult, unless they use specific information gained whilst working for you (stealing the design of one of your products or something). At some point it does come down to you having to trust people!
Is sub-contracting different. We just want someone who she can send to clients when she can't fit them in. The plan is they pay for their own insurance and are responsible for their own tax returns etc. If the client is charged (for example) £20/hour, the wife takes £5 and the other person £15.
Is that possible.
Is that possible.
Elroy Blue said:
Is sub-contracting different. We just want someone who she can send to clients when she can't fit them in. The plan is they pay for their own insurance and are responsible for their own tax returns etc. If the client is charged (for example) £20/hour, the wife takes £5 and the other person £15.
Is that possible.
Depends on the contract between you, and how HMRC view that contract.Is that possible.
The IR35 guidelines are quite useful for this, i.e. Do they control their own work, can they work which hours they choose, and do they work for others at the same time. If the answers are "no", then they pretty much are an employee, and HMRC will see it that way, and come chasing for ENI and probably more.
Elroy Blue said:
Is sub-contracting different. We just want someone who she can send to clients when she can't fit them in. The plan is they pay for their own insurance and are responsible for their own tax returns etc. If the client is charged (for example) £20/hour, the wife takes £5 and the other person £15.
Is that possible.
You have to be very careful.Is that possible.
Your wife, as the "employer", cannot dictate to or tell someone else that "they have to do their own tax returns". HMRC will tell you that what determines whether a person is "self-employed" or an "employee" is the nature of the relationship between the "employer" and the "worker". In fact, "Self-Employed" is a rubbish expression and I wish HMRC never started using it. Sole Trader is much better - as it includes the term "trade" which is crucial to determining status.
For the person to be classified as a self employed individual they must exhibit the characteristics of someone who runs their own business. On other vwords, they should really exhibit a good number of the following characteristics
they are responsible for the work they do and the cost of rectifying any mistakes
they pick and chose their own customers
they are in control over how and when they do their work
they can hire their own staff and replace themselves with a substitute if necessary
they use their own tools and equipment
they should have their own place of business
they should advertise their services
they should not be restricted excessively by any of their customers
If the other person is already doing this line of work and the contract between you is for "introductions only" so you have no responsibility to the end client as to how the work is performed and its quality, then I don't see an issue.
If not that clearcut, then you will need to ensure that the work performed does appear to be as a self-employed subcontractor - see Eric's list above.
I have a client undertaking this for several years - supplied HMRC with an explanation of what the "Commission Income" was in his accounts and no queries raised to date (4 years).
David
If not that clearcut, then you will need to ensure that the work performed does appear to be as a self-employed subcontractor - see Eric's list above.
I have a client undertaking this for several years - supplied HMRC with an explanation of what the "Commission Income" was in his accounts and no queries raised to date (4 years).
David
Elroy Blue said:
Cheers Eric
As the 'other person' is already a sole trader (but working very limited hours), can we put the business their way and take a small cut
When I've used sub contractors they have billed me for their time (pre quoted) and I have billed the customer as I quoted them originally. As the 'other person' is already a sole trader (but working very limited hours), can we put the business their way and take a small cut
Normally making a profit.
So in the case of your wife, she could say to person B, I'll pay you £15 p/h if you do work for me.
And say to the customer, it's £20 p/h to do that work. Usual terms apply.
Person B does the work and invoices your wife as agreed at £15 p/h and your wife invoices the customer as agreed at £20 p/h.
It would become interesting to HMRC if your wife ends up giving Person B the majority of work that pPerson B does. But for occasional stuff there should be no issues.
(Hope that makes sense)
Draw up a simple contract between your wife and the subbie, making it clear that it is a contract for services, not a contract of service, and that they are paid nothing for turning up at your wife's office, have no expectation of or right to regular work and no right to holiday any or other benefits. They are the main things HMRC look for.
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