Paying a family member for work

diesel_doglet

I am self employed and also own a rental property. My father regularly assists with repairs on the rental and also gives me some labour from time to time when I need a hand for my self employed job.

Is he aright to give me an invoice for his time? He is in full time employment and so would he then be covered by the HMRC £1000 trading allowance meaning that he would not have to submit a tax return (It would be unlikely that he would go over the £1000 threshold, but if he did then he would then need to file a return anyway).

Any advice would be greatly appreciated.

Thanks
DD

[Deleted User]

The trading allowance applies to those who are .... trading! The rental property is not a trade and your father is not self-employed.

diesel_doglet

Hi,

I am aware that my father is not self employed and I am aware that my rental property is not a trade. My father is very handy and the assistance he gives to me in my rental property is gardening, slabbing, property maintenance, a but of carpentry, carpet fitting etc. I am a self employed electrician so when he helps me he helps me pull in cabling, run conduit and in preparation and tidying up.

The trading allowance appears to cover miscellaneous income up to £1000:

From https://www.litrg.org.uk/tax-guides/self-employment/what-trading-allowance

"A trading allowance has been introduced for the 2017/18 tax year onwards to exempt trading and/or miscellaneous income of up to £1,000 per tax year from income tax. The allowance can be used against any trading or miscellaneous income."


From https://www.farnellclarke.co.uk/newsletters/how-the-gbp1000-trading-allowance-works

"The exemption from tax applies to taxpayers who have trading income of up to £1,000 from:

self-employment
casual services, for example, babysitting or gardening
hiring personal equipment, for example, power tools.
Where this £1,000 allowance covers all the individual’s relevant income (before expenses), the income is tax-free and does not have to be declared to HMRC."

From the above I would think that my fathers small amount of work for me would fall into this trading allowance?

If anyone has any advice though I will be most grateful.

Thanks
DD

Tom99

I can't see a problem with what you propose after-all MP's employ their family and we all know they are all as honest as the day is long.

jimmo

[Deleted User] wrote:

The trading allowance applies to those who are .... trading! The rental property is not a trade and your father is not self-employed.

Rather puzzled by that.
Whilst a rental business is not a trade it is not unheard of for a lettings business to engage the services of a trader.
If you are going to pay your father, 2 things you need to consider are:
1) Whether the amount paid is a realistic commercial price for the work done.
2) Whether your father is genuinely self employed or your employee when doing the work.

If you father is a handyman you should pay the appropriate rate for handymen. I would think that would be substantially less than a Gas Safe Engineer or fully qualified electrician.
If your father helps out with the admin he is a clerk, not a commercial letting agent.
You also need to be able to show that you did pay him. Money needs to change hands in a demonstrable way such as bank transfers. Cash in hand is a definite No. Also he can't give you the money back later.
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim37735

Whether your father is employed or self employed is a much trickier question.
HMRC has an Employment Status Indicator.
Give it a go.
https://www.gov.uk/guidance/check-employment-status-for-tax

If your father is an employee you may both find that its more trouble than its worth to pay him.

tebthereb

I am surprised by the responses so far.

Yes your father can raise an invoice for work he does for you.

Pay him in whatever form you agree between you.

In strictness you must consider employment status but seems highly unlikely that use of a handyman in these circumstances would be employment.

For father, £1k would be within his trading allowance, assuming its his only trading turnover.

For you, consider a deduction for the cost in computing your rental profits for tax. If it was wholly and exclusively incurred, then its fine. As it’s your father having an invoice is all the more important as HMRC tend to scrutinise related party transactions. It’s not for HMRC to say whether the price is fair but they might try if the fee is more than the going rate for the work.

Whether it is cash or not is irrelevant to you being able to claim relief or not.

Whether it is actually paid might be relevant depending on whether you apply the cash basis or not in computing rental income.

I don’t understand the comment that your father can’t give the money he earned back to you. Once he earns it, it’s his, he can do what he likes with it.

There are potential tax implications if he gives it back. These are unlikely to create tax charges in practice.

tebthereb

I refer to his time on the rental property.

His help to you on other matters might cause more complications.

I wouldn’t bother making payments to him for that unless he wants it or agreed between you.

uknick

I think the comment about father giving the money back was on the basis;

father gets £1k,
this is treated as deductible expenditure for the rental business,
father gives it straight back to son as gift.

If HMRC were to investigate this set of transactions they could construe it as tax evasion as, on the face of it, it looks as if it's been done purely to allow the son to save the tax on the £1k.

diesel_doglet

Thank you all for your very comprehensive replies. It appears that his small amount of income from helping me would fall well within the "HMRC trading allowance". The reason for asking this is that although I want to pay him a little (which would not exceed the going rate for services) I would not want him to get stressed out with tax returns. If it meant he had to file a tax return he would prefer I don't pay him.

Thank you all once gain.
DD

[Deleted User]

jimmo wrote: »

Rather puzzled by that.
Whilst a rental business is not a trade it is not unheard of for a lettings business to engage the services of a trader.
If you are going to pay your father, 2 things you need to consider are:
1) Whether the amount paid is a realistic commercial price for the work done.
2) Whether your father is genuinely self employed or your employee when doing the work.

If you father is a handyman you should pay the appropriate rate for handymen. I would think that would be substantially less than a Gas Safe Engineer or fully qualified electrician.
If your father helps out with the admin he is a clerk, not a commercial letting agent.
You also need to be able to show that you did pay him. Money needs to change hands in a demonstrable way such as bank transfers. Cash in hand is a definite No. Also he can't give you the money back later.
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim37735

Whether your father is employed or self employed is a much trickier question.
HMRC has an Employment Status Indicator.
Give it a go.
https://www.gov.uk/guidance/check-employment-status-for-tax

If your father is an employee you may both find that its more trouble than its worth to pay him.

Yes - my reply was a little too succinct! Your point 2 reflects what I was getting at- albeit somewhat more clearly defined.

Heedtheadvice

As just a little aside, hopefully not really off topic too far.....


Having an interest in an organisation that has people doing work for it (who get reimbursed following the organisations owner's annual meeting rather than specific agreed rates) I have been through the HMRC's status indicator guide as posted above. These personnel run their own businesses by and large. The results include 'HMRC cannot decide based on the information given'


Which type of professional is best placed to advise on the correct status?