Subcontracting to another freelancer

dllive

I'm a freelance IT technician. I'm currently working on a job which I'll need the skills of another guy. Is subcontracting to another freelancer tax deductable? I have a feeling the other guy will want to be paid cash in hand, but I want to keep everything 'above board'.

inmypocketnottheirs

If he is paid cash in hand then that is not keeping everything above board.

The correct way would be for your sub contractor to give you an invoice, then it would be tax deductable for you. Any other method would involve you being liable for the tax on the money you pay out, as you would not have any receipt or invoice for the transaction.

Pennywise

Also consider whether HMRC would regard this other guy as your employee, and expect their pound of flesh from you in terms of tax and national insurance. If he is clearly in business in his own right, i.e. has plenty of other clients, not paid by the hour, can do the work how & when he likes, etc., then you've not got a problem, but if he is a "mate" who's got a job and only doing this for you on the side, you're paying him an hourly rate and you're controlling when & how he does it, then there is every chance that HMRC will regard you as his employer. It's far more than just getting the other guy to give you an invoice I'm afraid!! The legal burden is on you to prove to HMRC (if enquired into) that the other guy is bona fide self employed. Of course, if it's a one off and the figures are small, then probably won't come up for enquiry anyway.

MrM

As a freelance IT technician you're probably also in the grey area of IR35. This is an excellent way of 'substitution' which is a big plus if the IR ever investigate you. I suggest either way you get the sub-contractor to work for you, even if it's not tax deductable.

dllive

The situation with this other guy is that he's not a freelancer (although I dont know if he's invoiced for other jobs this year). He works for another company, but he plays with computers in his spare time. He's got a lot more experience with this particular technology than I have - so instead of me trying to figure out how to fix the problem, I would save the time by gtting him to fix it. He's happy to be paid a per project fee (as opposed to being paid by the hour.) He will probably charge in the region of £500. I'm going to make it clear that cash is not an option and that he must invoice me.
Im concerned by Pennywise's comments. Would the government consider him an employee? Im sure it will be the only job we do together, but if I get another issue with this particular technology, then I may consider subcontracting to him again.
Thanks.

PlutoinCapricorn

Do you think that he might try to get similar, spare time work elsewhere? If so, he could register as a sole trader and put his UTR number on the invoice. Then you would both be covered. He would receive a tax form of course.

fengirl_2

Whether or not he works elsewhere is not the test of self employment and putting his UTR on his invoice does not cover you if he is not a true employee of YOURS (apart from the fact that a UTR number gives anyone who gets hold of it access to your tax records).

From what you have said, this looks like genuine self employment, but if you are really concerned, then you should speak to a status inspector at your tax office (or ask your accountant).

dllive

Yes, I can't see the tax man looking at this would think that this is anything other than self employment, and so his fees would be tax deductable...... I hope!

happy1982

I hope it is tax deductable! lol!

dllive

Hi Jimmo, I don't know if it makes a difference, but I'm on the payrole of a company (paying PAYE). I work for them for part of the time, and I work freelance the rest of the time. The job in question is for my freelance job. The money I'm paying for is definately a fare price for the job (more than fare!). He has said that he will invoice me. We're not trying to get away with not paying tax, I just want to make sure that the payment is tax deductable. I hope the above sheds a bit more light on the matter.
What do you mean by "taxable" profits, aren't all profits taxable?

dllive

Thanks for the explanation jimmo. I'm thinking about paying an accountant to take care of my finances. I only earn a very minmal amount in freelance fees (this year Im expecting to take around £5k), but I hear that £300pa on an accountant is well worth it. I'm really bad at keeping receipts! I need to get in the habit of keeping receipts for things!