Hiya everybody.
Looking for some advice on employing other people.
I am self employed and run my own small business in Bath. It's usually just me but occasionally i need to get in extra help for my bigger jobs. Ideally this will become a more regular thing as my work load and job size increases.
At the moment, if there is 2 of us working - I am charging the client for 2 man days and then paying my laborer an hourly/day rate out of this. I am then getting my labourer to invoice me for the hours done for my records.
What i don;t know is how this works when it comes to tax. Should I be declaring that i am employing someone else? I would like to keep it more as a casual labour type arrangement for ease, but i suppose if I'm wanting to expand then do i have to become an employer? Bearing in mind I want to keep the business as a small personal organization and wouldn't want to employ more than 2 people at any one time. I'm not thinking major company.
Also, what do you recommend as an hourly rate for them? My usual prices are £130 per person per day. Or £15 p/hour.
I then pay my labourer his hourly/day rate out of this which is usually £8 p/h or £70 p/day.
Does this sound like fair pricing and is it the right way to do it?
Many thanks in advance
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Hi Sam
I'm sure you're goning to get a fair bit of help on this but in the meantime, take a look at this search string (some of it won't be of relevance but most of it my hold some interest).
http://www.google.fr/search?hl=en-GB&q=employing+site%3Alandsca...
Hi Sam,
I have been in a similar position regarding employing more people. the best person to ask about tax is an accountant. there are certain allowances for short term/casual labour. Unless your labourer has his own company and you can call them a sub-contractor, I don't think he/she can invoice you, you will have to take tax off at source. it sounds ok (invoicing) but if he/she doesn't declare the income and either one of you is investigated your both up the creek!
Another thing to think about is employer's liability insurance. public liability probably only covers you not staff. if he/she chops their foot off, again your up the creek.
sorry to be doom and gloom! hope this helps
tom
p.s. I pay non skilled labourers £50 per day to start then as you can trust them and they learn skills wages go up accordingly to about £70. But then I'm a tight northerner, wages probably need to be higher in Bath!!!
It's all covered by HMRC IR35 regulations.
You are perfectly entitled to employ another self employed subi providing he genuinely is self employed, submits tax returns, works on a ad hoc/ as and when required basis and invoices you for his labour. A comprehensive sub contractor agreement between the two of you would also be advisable. Your accountant will be able to give you the details.
The regulations were introduced to catch the bigger fish - those claiming self employment when in practice they were employees but the tax man is clamping down even on one/two man operations.
Yes we also employ another but on a self employed basis, we get them to sign a agreement that they are responsible for their own tax affairs. We agree with them thats a ad-hoc relationship which suits the business as well. Maybe if the business was bigger with lots of fixed contracts I might take the risk on PAYE but the risk is too great I feel. The main problem is finding someone who is self employed and willing to be flexible to the needs of your business.
Just to add...
HMRC will 'chase the money'. In other words both the main and subcontractor are liable for any unpaid tax and NIC if they deem the subi is in effect an employee. The tax man will go after whoever they think has the deepest pockets !
Clive,
Is that a bit of an generalisation ? It reeks of underlying problems with the employers (or perhaps the building trade) - perhaps they were difficlult to work for, didn't pay enough, didn't respect staff, was devious/unfair ..you name it...it works both ways
If you run a reasonable business, select staff with care, pay a fair wage and be aware of their issues, concerns then there is no reason why employing staff is an issue.
For me, and a suspect a lot of other LJNers, it has been a rewarding experience (but not without problems - agree).
In my experience, Subbies do not always have the same loyalty, committment and approach that an employee has.
Otherwise everyone would be a sole trader ????
We have been using subies for a number of years and they have to be registered under CIS. They invoice you for an agreed amount be it day rate or job for which you deduct 20% which you forward to the indland revenue using their registration number.
They still have to keep their own records but thiis way you are covered if the revenue come knocking at your door.
You have to be aware that if their only job is working for you then you may well have to put them on your books. The advantage with CIS is it is reletively straight forward to do. Just have a word with your accountant. The guy working for you just needs o provide a few details and register with the revenue.
As others have said make sure your insurance covers you for using him or he has his own policy and insist on keeping a copy of it on your records.
Thanks everybody for your replies! Very helpfull.
I think as far as I can see I am doing this correctly then so far. The guy I employ (2/3 times a month?) invoices me and I treat him as casual labour. But graham - you say I should forward 20% of this to the inland revenue?
Until I start using someone more often I am going to continue working in this method i think...
Thanks guys...
Does anyone know if the CIS scheme can be used for gardeners? I have the scheme in place for my landscapers but I thought it wasn't relevant to gardening as such.
I asked an accountant that I know about the subcontractor/employee question and he pointed me towards the following test to help you decide - some people here might find it useful:
HMRC said the tests are designed to build up a picture of how a contractor’s business works and how they provide their services. The tests and their scores include:
Business premises test - Does the business own or rent business premises separately from the contractor’s home or end client’s premises? (10 points if yes)
PII test - Does the contractor need professional indemnity insurance? (2 points if yes)
Efficiency test - Has the business had the opportunity in the past two years to increase its revenue by working more efficiently? (10 points if yes)
Assistance test - Does the business employ any workers who bring in at least 25% of the yearly turnover? (35 points if yes)
Advertising test - Has the business spent over £1,200 on advertising in the past year; entertainment does not count as advertising (2 points if yes)
Previous PAYE test - During the past year, has the end client engaged you with no major changes to your working arrangements (Minus 15 points if yes)
Business plan test - Does your business have a business plan with a regularly updated cash flow forecast, and does it have a business bank account, identified by the bank as such and separate from your personal account? (1 point if yes to both parts of the question)
Repair at own expense test - Would the business have to bear the cost of rectifying any mistakes? (4 points if yes)
Client risk test - During the past two years, has the business been unable to recover payment amounting to more than 10% of yearly turnover? (10 points if yes)
Billing test - Does the business invoice for work carried out before being paid and negotiate payment terms? (2 points if yes)
Right of substitution test - Does the business have the right to send a substitute? (2 points if yes)
Actual substitution test - Has the business hired anyone in the previous two years to do the work it has taken on? (20 points if yes)
The scores used to assess contractors’ risk profiles are as follows:
Less than 10 points High risk
10-20 points Medium risk
More than 20 points Low risk
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