Tax question with a small group of freelancers

BobRoberts

Sandtree said:

BobRoberts said:

the whole point is that we are all equal stakeholders. If it was possible for him to be paid, then distribute, and us all pay our own tax as required that would be the obvious solution to me, assuming there are no practical reasons why that can't happen.

Then that starts sounding like a partnership but that too may be more formal than you want.

He can be the lead contractor and you sub-contractors if thats how you want to play it but what benefit does it bring to you? I am not suggesting he'd do anything bad but if he runs off with the money, goes bust etc you have no recourse against the end client. Similarly he will be taking on the initial liability for the quality of your work to the end client. You will also be in the dark as to what he is billing your time out at to the end client so you could be charging him £50 an hour but he's billing the client £75/hr which isnt a problem if your happy with the £50 but may leave a sour taste.

Its a solution that can work, many consultancies etc use contractors to do work for their end clients, but you need to be clear on the WIIFM and consider it worth the risks.

I think really, its mostly just that its a new thing, so we're all finding our feet. Its currently up in the air with this project as there are other proposals, but if we do land it, I'll mention the tax thing. One of the other guys who is involved to a lesser degree has a lot more experience with this side of things - so I'm sure it will work itself out.

BobRoberts

J_B said:

My take ....

Mr Experienced sends the bill and takes the payment which he has to pay tax on.

But, he passes on the funds to all the group which is all tax deductible, so, it shouldn't matter

Is that too simplistic?

That's exactly how I had in my head it should work.

Grumpy_chap

BobRoberts said:

J_B said:

My take ....

Mr Experienced sends the bill and takes the payment which he has to pay tax on.

But, he passes on the funds to all the group which is all tax deductible, so, it shouldn't matter

Is that too simplistic?

That's exactly how I had in my head it should work.

I'm with the simple approach.  BUT, if there is realistically more than the one project, then formalising a partnership or Ltd Co sooner rather than later may be best.  Simple, the process of getting together and agreeing matters will simplify and protect against future queries - such as if the 3 of you are working together can each of you also work apart?

Mistral001

Nobody has mentioned VAT.  It is quite possible that the guy who gets paid by the client will have sufficient turnover to require him to register for and charge VAT.  He will have to pay the VAT he charges to HMRC.  THAT is probably the tax he is referring to.  The other freelancers will not have to charge VAT to the guy paid by the client as they (assumingly) will not be be being paid enough to go above the VAT threshold.  Everybody including the guying being paid by the client can operate as a sole trader or they might want to become a Ltd company if they wish or some can be sole trades and some can be Ltd companies.  Everybody has to pay their own income tax.

Be aware that the person getting paid will normally take a cut of what everybody else is getting paid.  That can be very low or as high as maybe 50%.   I would be very surprised if he will be willing to not take a cut as he has huge risks financially and he will have quite a bit of extra admin. work to do.  Also getting clients is not an easy thing to do.  If the freelancers were getting paid the same as the guy paid by the client they would be getting a bit of a free ride to be honest.