Supplier Records - What is Needed to keep HMRC Happy?

oompahloompah

Hi everyone

I am a partner in an events management business. We have no employees, but occasionally get other businesses involved when we don't have the expertise or equipment necessary for the job - e.g. chair/table hire, musicians and so on. We bill the customer, the supplier bills us and it is all documented.

However, at the moment we are working on a project with someone (self employed) who will be employing others on the night (she has a productions company and will be providing actors/performers for the evening). We were discussing payment, and she has requested that we pay the performers rather than going through her - she says what she does is pay the person by cheque and writes a receipt for her files; she doesn't get them to sign the receipt or provide an invoice or anything and doesn't deduct any tax or NI from them. She then deducts these payments as "sub-contracting" for her annual accounts (but doesn't submit the individual payments to HMRC, just a total on her tax return).

I said that I wasn't sure this would stand up to HMRC scrutiny if there were ever an inspection, but she says that because they would be paid by cheque there is a paper trail and so is covered. She has no idea whether the earnings are declared to HMRC (most are students or minimum wage earners) and says it's "none of her business" whether they declare their "self employed" income to HMRC.

I suggested even asking them to sign receipts but she says that if we did this it would look like she "didn't trust" the individuals and they might not want to work for her in future. [STRIKE]Because they are only working for her a few times a year (although she is involved in productions throughout the year, she uses different performers depending on the project) she says it really shouldn't be an issue - she has been doing this for over 6 years now.[/STRIKE]- this bit probably isn't relevant to the question, but might be as she seems to have been doing it for a while??

Anyway, I was just wondering if the self-written receipts would indeed be enough for HMRC? Or should I just ask her to invoice me for the full amount due and let her pay the performers as she usually does?

Thanks for all your help with this.

Premier_2

Why are you getting involved in other peoples business?

All you need concern yourself with is that the contractor you are employing is genuinely self employed. If they are, then how they employ their workers is up to them.
She should invoice you for the full value of the service she provides.

oompahloompah

Sorry if my question wasn't entirely clear - I am not trying to get involved in someone else's business; just trying to make sure my own is correctly administered.

The productions company owner has requested that we pay the performers directly, rather than through her, and she has advised us how she usually does this as the performers will not provide receipts or invoices for us to show in our records.

I was asking whether it would be acceptable to HMRC for us to make up receipts of our own on the performers' behalf or would we need a proper invoice or receipt (from them, possibly signed) to back up the payment?

Thanks

Gertie_Walker

You are being asked to get involved in sopmething slightly dodgy here. They are not subcontractors as this only applies to the construction industry and their relationship is with your supplier as they are going to tell the workers what to do, make sure they turn up, etc. Your supplier is trying to avoind their responsibilities as employers and trying to dump the onus on you. You need to tell them that they are engaging these people and providing the service you have requested so its their reposnibility to pay their workers out of the fee you are paying them and invoice you for the service. HMRC is not interested in who has done the work contained in your invoice as far as you are concerned - this would fall to your supplier to give them the info if they ask for it, as well as accounting for tax and NIC, if applicable.

Pennywise

What paperwork you do or don't keep is fairly irrelevant. Whether you pay them cash or cheque is irrelevant. Whether they give you a receipt or not is irrelevant.

If this other person is organising the people etc., then they should pay them and should raise an invoice for you to pay her. You really shouldn't be paying them direct as all it's doing is transferring her responsibilities onto you.

Unless you can satisfy HMRC criteria of them being self employed, then you have to pay them as an employee, abide by the employers PAYE rules, get a P46 or P38(??) signed by each employee, get their name, address, dob and NI number, check they are eligible to work in the UK, deduct tax/nic from them, etc etc.

They're either self employed or an employee - you're paying them, so it's you who'se liable if you get it wrong. Have a look at the HMRC website as it's all fairly well explained on there.

Mahmood_Reza

To add to the useful comments above: It would seem to me that your engagement for services is strictly speaking between the production company (the woman in question) and you, it is for the company to ensure payment of their fees, assess their initial competence etc etc. If you get involved in this manner it may be inferred that the engagement is actually between you and the performers. If you incorrectly apply the status tests (i.e. distinguishing between employed and self employed) then payments made to an individual will be assumed to be net of tax , HMRC will seek to gain tax, penalties and interest. The only way to protect yourself against this is to only engage indiduals that operate their own companies - this avoiding the need for a status test. This is one of the main reasons why it is pretty difficult for an IT freelancer to work in that industry without a limkied company to operate through.
I would suggest an indeminty clause in future contracts, with individuals that you refer to

oompahloompah

Thanks everyone. I thought it was a bit suspicious but wasn't sure if I was just being over-cautious. I'll insist upon a full invoice from the productions company to cover all the performers and associated costs (props, costumes and so on).

Just out of interest, what would the penalty be if someone was paid as self-employed when they were in fact an employee? I'm assuming the employer would be responsible for any tax/NI that should have been paid, and a fine?

Mahmood_Reza

Potentially (subject to how the error arose, and who made it) tax geared penalty up to 100% of tax 'lost'; penalties for not filing employee returns (which would now be late) £100 per 50 employees for each month/part month that returns are overdue - e.g. tax year 2009-10, P35 return due 19.05.10, if received 20.05.10 = late (part month); if P11ds due then same level as P35 - for 2009-10 P11d due by 06.07.10.
Add to this potential legal action by HMRC for Money Laundering, £5,000/individual if they turn out to be signing on; £10,000 if the individual does not have a work permit.
PLUS HMRC would assess you as a relatively high risk (compliance failures) and a full tax investigation is more likely.

oompahloompah

Mahmood_Reza wrote: »

Potentially (subject to how the error arose, and who made it) tax geared penalty up to 100% of tax 'lost'; penalties for not filing employee returns (which would now be late) £100 per 50 employees for each month/part month that returns are overdue - e.g. tax year 2009-10, P35 return due 19.05.10, if received 20.05.10 = late (part month); if P11ds due then same level as P35 - for 2009-10 P11d due by 06.07.10.
Add to this potential legal action by HMRC for Money Laundering, £5,000/individual if they turn out to be signing on; £10,000 if the individual does not have a work permit.
PLUS HMRC would assess you as a relatively high risk (compliance failures) and a full tax investigation is more likely.

JEEZO! :eek: We really don't want to get on the wrong side of the HMRC people, do we??

Thanks for all the help and advice everyone.