Q: If I pay friends for informally helping out in my business, should I still deduct the amount of money they earn from my tax form?
Dec 15 2009
Answered by: Clive Lewis Ask a question
Payments out of your business funds to people who are your friends will be treated as payments to “casual workers” and dealt with in one of two ways by HMRC. Either the people are: (a) employees from whose pay Income Tax (Pay As You Earn or PAYE) and National Insurance Contributions (NIC) are deducted or they are: (b) self-employed, who should be already registered with HMRC and pay Income Tax and NIC directly under assessment.
If the people providing services are self-employed they must provide you with an invoice with the details such as name and trading name, trading address, a description of the goods or services provided and VAT registration number.
If they are not self employed and you make payments to them, the payments will be treated as net salary and you will be expected to pay over to HMRC the Income Tax and NIC which should have been deducted. Should this happen, it will be up to you to attempt to recover the Income Tax and NIC from the people concerned.
At the end of each tax year (5th April) employers are asked to declare whether they have made any payments without deduction of tax as part of the Employers Annual Return.
See the HMRC help sheet: Employment status: employed or self employed.
Comments