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Employing friends

Hi all,
Have been lingering for a while but never opened my mouth as of yet. I'd like to ask a question.

When employing friends on a casual basis, what is the proper way to go about paying them?
I.e - if i invoice a customer and include the friends labour, and pay the friend, can i claim his pay against my income... & how?

Thanks,
Joe

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Replies to This Discussion

Permalink Reply by Kerry Jackson on July 5, 2009 at 11:03am: Friends and business? Oil and water. Never.; ▶ Reply to This

Permalink Reply by Joe L on July 5, 2009 at 12:17pm: Have been doing so for a few months and its never been a problem, but appreciate the concern!

Any insight onto the correct process for employing them?

Do they need to register self employed?

Thanks,
Joe; ▶ Reply to This

Permalink Reply by Pro Gard on July 5, 2009 at 1:29pm: I'm 99% certain they do need to register as self employed, further I seem to remember that they need to sign a inland revenue form for your records to state this. You can then I think claim back the wages.

The best thing to do will be to contact the tax office for advice, otherwise you could end up in hot water.

I have a couple of guys who help me out on occasional jobs but whilst I include their day rates in the over all initial quote I get them to invoice the customer separately thus avoiding any hastle, this is another option. I then only invoice the customer for my own time and materials etc, I explain this to the customer and this arrangement works well for me. Just be sure they are actually self employed though and not just not disclosing.

BTW, I agree with Kerrie, be sure to keep any arrangements on a formal business basis.; ▶ Reply to This

Permalink Reply by Graeme @ The BGS Group on July 5, 2009 at 2:14pm: Pro Gard approach is good as you end up with no come back upon yourself from the tax man. But if paying your friend directly and when the work is short-term and for a finite period or the extent of the workload is unknown the tax office would be happy to accept that you employ people on a self employed basis.

You do however have to make sure that the person is registered with the tax office as a self employed person! Get their tax details off them!!!

You must offer a contract stating that they are self employed and that the contractor is not entitled to sick pay, holiday pay or any form of employment protection other than work place Heath and Safety. Also highlighting that the contractor is responsible for his / her own tax and National Insurance and on what basis they will be paid.

But make sure you spell out your T&C's and expectations to your friend very clearly or it will end in tears :-); ▶ Reply to This

Permalink Reply by martin on July 5, 2009 at 6:36pm: Great qustion this is my problem i employ 3 people all part time earning £90 or under per week.

Iam in the middle of setting them up through PAYE and they dont have any other income.

apart from this is there anything else i need to do all are fully insured would i also need a contract written out and if so would it have to be a legally binding document.

cheers for the help; ▶ Reply to This

Permalink Reply by Graeme @ The BGS Group on July 5, 2009 at 6:58pm: martin said:
is there anything else i need to do all are fully insured would i also need a contract written out and if so would it have to be a legally binding document.

Are these seasonal workers or for the full 12 months but reduced hours?; ▶ Reply to This

Permalink Reply by martin on July 5, 2009 at 7:05pm: There seasonal

If iam really busy during Jan/Feb i may use them for the odd week

Thanks for the quick reply; ▶ Reply to This

Permalink Reply by Graeme @ The BGS Group on July 5, 2009 at 7:25pm: Contract will be Emailed to you as soon as I can dig it out.; ▶ Reply to This

Permalink Reply by Kerrie John on July 5, 2009 at 7:51pm: Kerry Jackson said:
Friends and business? Oil and water. Never.

I'm with Kerry with the oil and water. Also, don't do work for friends either unless you want to lose them.; ▶ Reply to This

Permalink Reply by Graeme @ The BGS Group on July 5, 2009 at 8:01pm: Sample contracts sent to your Google Email address Martin. Any queries just Email me.

How many hours do they work for less than £90 per week?? I hope David is reading this!!! :-); ▶ Reply to This

Permalink Reply by Donny Bryan on July 6, 2009 at 12:16pm: I'm with Kerry and Kerrie on employing friends!

As for the tax / employment implications:

Rule number 1 - check with a tax advisor or HMRC themselves

Rule number 2 - ditto

Rule number 3 - ditto

HMRC undertakes regular ad hoc investigations of small businesses. They randomly select a set number each year to investigate and that's on top of anything that they spot through cross checking records. It really is important these days to be as squeaky clean as you possibly can be in these matters.

Having said that I'm happy to share my personal experience. However, here's my disclaimer - I'm not a tax advisor or employment advisor and I'm not offering you advice, just sharing my personal experience - phew!

Firstly anyone who is providing casual labour should be registered self-employed with the Inland Revenue and that is their responsibility. They must register self-employed within 3 months of commencing self-employment so there is a window here for someone starting out. This applies even if they have a regular paid job too. You can be employed and self-employed at the same time. If you're going to be using them regularly then I'm with progard and I would get evidence from them and a signature to cover yourself.

I rarely use casual labour as it is fraught with difficulty on many levels including making sure that they are properly insured. However, having previously had a chat with a remarkably friendly HMRC advisor when I do I am careful to use casual labour on a per assignment basis, agree a rate/days for that assignment and then require them to formally invoice me for their work at the end of the job. I then pay their invoice and obviously retain their invoice for my records. This way there is no question about whether I am 'employing' them - clearly I am not.

The only time I have them invoice my customer directly is if I have introduced the customer to a professional tradesman to complete a specific aspect of the job e.g. electrician. In these instances to avoid any possible confusion all dealings with that tradesperson are between them & the customer and I do not become involved. i.e. the tradesperson provides customer with estimate / agrees price / is invoice & pays tradesperson. This way there is no possibility that the taxman might view the tradesperson as my sub-contractor either.

If any casual labourer is regularly working for you then you do need to be careful that they are not breaching IR35 rules and have effectively become an employee in they eyes of the taxman. If you are in any doubt check with an expert as it can be really costly if HMRC decides they have been your employee.

Your question about how to treat the payment you make to your friend for tax purposes will depend upon your specific circumstances. My understanding is that if their labour was part of your 'cost of sales' then you can treat it as such within your accounts thereby offsetting against profit. This is made easier to demonstrate where you have been invoiced by your casual labour for a specific assignment.

You could also contact a local business association such as business link who will probably have advisors they can put you in touch with.; ▶ Reply to This