Sole Trader, sub-contracting work to girlfriend who is also sole trader

looknohands

I am self employed, sole trader business,

I've recently had a lot of work come in and I can't handle the work load so am looking to sub-contract this work to my girlfriend, she's registered as a separate self employed sole trader business in the same line of work as myself, as a freelance designer. I trust her, know she will do a good job and we share a studio space so communication will be very easy, so makes sense to sub-contract the work to her.

Now I'm a little worried about this being seen as tax evasion...we share a bank account, we own & live at the same house, so I would technically still be able to use her income from the job and my sole trader business i'm a 40% rate tax payer, if I hire her to do the work she only pays 20% tax.

I can see how this could be abused, is this something that's a complete no no. Or is there something I can do to evidence the work is done by her in the case of audit? Time sheets of hours, or I could get the client to pay her directly rather than me paying her from my business?

Alternatively the easiest but a bit of a weird way I can think would be for her to just do the work 'for free' for me and I bill the client from my sole trader business, I then just pay the money into our joint account and she's technically getting paid, we avoid the head-ache of it being tax evasion but the job gets done!

Darksparkle

Have you done an employment status check to ensure she wouldn't be considered your employee?

https://www.gov.uk/guidance/employment-status-indicator

If you check that and it indicates self employment then keep a record of it in case HMRC want to check. I would expect her to then invoice you for the work done.

Lord_Baltimore

Why not just ask HMRC so that you have a cast iron assurance that what you're proposing is acceptable...or not.

looknohands

Thanks for the link, she's self employed, the indicator confirms that. We have the same line of work, but two separate businesses, all our clients are different and we are both sole traders.

I would invoice client, she would invoice me for the work done which would then be paid into her business account, then from her business accounts she would pay into our joint account and her personal accounts.

That our personal finances then link back up is my main concern.

Good idea Lord Baltimore, though obviously i don't want to inadvertently trigger an audit (which will cost me in time and accountancy fees) if it is in fact a definite no no...

Darksparkle

looknohands wrote: »

Thanks for the link, she's self employed, the indicator confirms that. We have the same line of work, but two separate businesses, all our clients are different and we are both sole traders.

I would invoice client, she would invoice me for the work done which would then be paid into her business account, then from her business accounts she would pay into our joint account and her personal accounts.

That our personal finances then link back up is my main concern.

Good idea Lord Baltimore, though obviously i don't want to inadvertently trigger an audit (which will cost me in time and accountancy fees) if it is in fact a definite no no...

You can be both self employed and employed in different roles/under different terms of engagements etc. That's why I suggested the link. If you have completed it accurately and kept record of it then there should be no issue. If tax man asks, show them that and the invoice.

Not sure why the joint personal account would be an issue, many couples will be the same.

Lord_Baltimore

looknohands wrote: »

i don't want to inadvertently trigger an audit (which will cost me in time and accountancy fees) if it is in fact a definite no no...

There is potential for it to cost you a lot more than that if you judge this incorrectly. I mean no disrespect to any who post here but on matters of tax, the horse's mouth is the final word.

looknohands

I did the indicator it said she is self employed.

Here's a quick example of why I see us sharing a bank account as a bit of a weird thing...

My current profit as a sole trader is £55k
Her sole trader current profit of £20k

If my girlfriend charges me £13k for this project it then takes me down to £42k profit, so that 13k has been moved from my higher rate tax to my girlfriend who now has £33k profit at 20% tax.

HMRC is then losing out on my 20% of extra higher rate tax revenue (£2.6k) I would have paid had I done the project.

This money is then paid from my business to her business and then into our joint account.
This seems as though it can be open to abuse if you don't have to evidence that the actual work has been completed by them. Hence me asking if I need to show time-sheets, evidence of the project being worked on etc...

Darksparkle

looknohands wrote: »

I did the indicator it said she is self employed.

Here's a quick example of why I see us sharing a bank account as a bit of a weird thing...

My current profit as a sole trader is £55k
Her sole trader current profit of £20k

If my girlfriend charges me £13k for this project it then takes me down to £42k profit, so that 13k has been moved from my higher rate tax to my girlfriend who now has £33k profit at 20% tax.

HMRC is then losing out on my 20% of extra higher rate tax revenue (£2.6k) I would have paid had I done the project.

This money is then paid from my business to her business and then into our joint account.
This seems as though it can be open to abuse if you don't have to evidence that the actual work has been completed by them. Hence me asking if I need to show time-sheets, evidence of the project being worked on etc...

So is it an option for the client to just contact her directly and leave you out of it?

looknohands

It's a long term client of mine, could be possible but I would like to oversee the quality of the work still and be involved in some manner, particularly the communication with them to ensure they return with more work.

KiKi

I don't think it would be an issue. If you were doing it consistently then maybe it would raise a flag. But ultimately your business can outsource to another business, that's fine.

I agree, though, that you should get a definitive answer from HMRC just to cover your back.

KiKi

looknohands

Thanks, I'll call them on Tuesday to check!