Once your portfolio grows a little you will at some point make a decision to seek out help. Many start with a managing agent, some will get a regular gardener or cleaner and others will take on help with their bookkeeping or other works.
It won’t surprise you that tax law has over the years developed a lot to make sure HMRC get their share!
Ignoring anyone in the building trade (property developers beware – that’s you!) for which there are another whole level of super complex rules you basically have three things to consider.
Paying a company
By company I mean a limited company. So if you are engaging with someone that is already employed by their own company or the simply work for a company you are pretty safe. Limited companies have to let all of their customers and suppliers and the general public know they are a limited company so this one should be easy to spot. Note this is not the same as someone that is simply in business. I specifically mean limited companies here.
Paying a person – employed
Where you pay a person they are either employed or self employed. There isn;t any other option. If you employ someone you must complete a payroll every time you pay someone. So if you pay someone weekly you must complete a payroll and notify HMRC weekly. If paid monthly then monthly returns are necessary. You also need to comply with the raft of legislation that applies to employees like holiday pay, sick pay automatic enrolment for pensions and hundreds of others of things.
Paying a person – self employed
Because the regulation around employment is vast and often very expensive you will probably prefer to pay someone as self employed. The self employed usually have their own insurance, tools and equipment, generally work for others doing the same thing and would not normally have set hours or work patterns. Self employed people pay their own taxes and if their turnover is large enough will also be charging you VAT.
So what’s the problem?
Well if you say someone is self employed but they are really employed you will get in to trouble. First of all HMRC will raise penalties for all of the payroll submissions you have missed. These are £100 pct for each missing form. So even missing a year can add up to thousands. Remember it’s £100 ppm for each missing form so that one from a year ago costs you £1,200. The one after that costs you £1,100… you get the point.
They will then demand the tax and national insurance that should have been taken off the worker. If you paid someone £1,000 a week that becomes their net pay and HMRC will gross up the payment. By the time you consider income tax and both employer’s and employees national insurance you could easily be adding at least 50% on top. HMRC will not care that you have already paid the worker and not deducted. They will leave the collection of any deductions to you.
On the other end of the spectrum they will ensure you have complied with national minimum wage regulations. So if you have paid someone £100 a week for 40 hours you will be forced legally to make up the shortfall.
What should you do?
For all but the blindingly obvious engagements with workers I would recommend you complete the CEST – here it is. Complete it honestly and print and keep the findings. If it says someone should be on a payroll reach out and I can give you the next steps.
Blindingly obvious?
Yes, the sparky that does the odd bit of work for you here and there will be self-employed. The cleaner that only does end of tenancy cleans for you will be. The builder that gives quotes for the works they do and has a team working for them probably is.
Equally the person you pay the every single week or month to work a certain number of hours is possibly employed. Do the check above to be sure!