Tax for one off payment

sheepysheep60

I run a limited company, as just myself. One of my friends has been struggling for work and job has come my way that I could use his help with. I know that as a limited company I need to take an invoice from him, which I can then use in my tax records as an expense.

My question is does he need to worry about tax? The sum will be around £600, his other income from salaried jobs (when he has work) is all taxed before he gets it. Does that mean he falls below a certain threshold of taxable income? Do I need to pay his tax for him? Making him file as a limited company for a one off payment seems a bit over the top, but I don't know anything about being a sole trader.

I really have no idea! I'd like to help him out, but I don't want him to get him in any trouble with the tax man. And I can't do cash-in-hand as it will have to be on the books for my company. I hope this makes sense!

Thanks in advance for any advice!

WestonDave

You need to work out whether he is going to be an employee (even for a short period) or a contractor. That depends on certain key tests which are widely available on the internet. He can't simply say he is self employed when he is not.

Assuming he passes the tests to be self employed, he will need to register as such with HMRC, probably consider paying Class 2 NI contributions regularly unless he can get the waived, and will need to submit a self assessment tax return showing all this various incomes including this £600 and then pay over tax and NI due over and above that deducted at source by his other employers. If he has other work its likely he has used up all his tax free allowances so this work will be taxable.

Be very careful because if HMRC decide he is an employee (regardless of what you might want to decide) then they can come after you for any unpaid tax and NI contributions which should have been paid on that basis.

HappyMJ

As above to be self employed he really needs to be doing it for a living as a sole trader already being registered as self employed rather than just a once off where some confusion could arise as to whether he really is actually employed by you. You can take on employees as a limited company just like your company should be doing for yourself as the director and if he earns under £148 per week then you don't have any NI or tax to pay anyway so he'll get the full amount so it makes no difference if he's self employed or employed. If his annual income is above the personal allowance then they'll change his tax code so that he pays any shortfall in tax due.

If he goes down the self employment route he won't get in any trouble for declaring to HMRC that he is self employed, fills in annual tax returns and pays his taxes on time. He'll have until January 2015 to pay any tax due on the profit from self employment which is done now. NI payments are due quarterly.

sheepysheep60

Wow, guys. Such great advice. Thank you very much!