Subcontracting to self employed INDIVIDUAL

**ASB** · 20 July 2009, 15:18

Originally posted by DuncanC View Post

My company is about to be awarded a long term contract from a US company.
We cannot do all the work ourselves and will need to subcontact some of the work to an individual.

Our company is a Private Limited Company, and I am a director. The other director is an employee and is on PAYE.

What is the best way to process this contract from the US and pay the subcontractor?

If the sub is self employed, he can invoice us, and we in turn can invoice the US client. That means our invoice to the US company will be one monthly amount, and then we pay the sub monthly based on his invoice to us?

Is there a better way?

DuncanC

If the sub is self employed that's basically fine. But what if in an investigation her turns out not be self employed. In a status the alternative is they are your actual employee. This can mean you haven't been deducting PAYE etc. Can get expensive. This is precisely why most companies won't touch SE with a barge pole.

Alternatives are to interleave an agency - but chances of one taking the risk are in fact nil due to other legislation, pay him PAYE on a casual basis of the work they do (don't forget holiday etc). Have them form a Ltd an bill through that.

**Not So Wise** · 20 July 2009, 15:30

Don't take on self employed individual, because if the tax man decides he is not you become liable for a lot of money

Tell him to go Ltd and invoice though that

**d000hg** · 20 July 2009, 15:35

Originally posted by Not So Wise View Post

Don't take on self employed individual, because if the tax man decides he is not you become liable for a lot of money

Tell him to go Ltd and invoice though that

Depending what country they're in this might not be possible.

Are you hiring said SE person for a number of weeks/months, or piecework only working on tasks as needed? Do you stop paying them the moment work is complete?

**DuncanC** · 20 July 2009, 15:40

Self Employed too high risk?

Thanks for the early replies.
Looking at this and some of the other postings, there seems to be too much risk in ever subcontracting to a self employed in individual.

In my example, I could insist that the person involved becomes a company, and deal with him that way, to minimise my risk and the potential wrath of HMRC.
However, are the days of the self employed numbered, if they cannot get this type of work due to the fear of the contractor being caught by the self employed individual's (POTENTIAL) lack of NIC and tax payments?

DuncanC

**Not So Wise** · 20 July 2009, 15:42

Originally posted by d000hg View Post

Depending what country they're in this might not be possible.

Are you hiring said SE person for a number of weeks/months, or piecework only working on tasks as needed? Do you stop paying them the moment work is complete?

True, but as no country named following the board rule of thumb of assuming poster is referring to the UK

If not UK poster needs to name country to get correct information

**DuncanC** · 20 July 2009, 16:08

Further Info

Sorry for not putting all the meat on the bone.

All of the work will take place in the UK.
The contract will last for at least 6 months.

My company will be paid at the beginning of the month, with my intention to pay the subcontractor monthly at the end of the month for the work done.

As soon as my US client has decided to end the contract, then my company will get 60 days notice, and the sub will be paid for the work done and the sub will receive one months notice of the contract ending.

I hope that helps.

**pzz76077** · 20 July 2009, 18:07

Originally posted by DuncanC View Post

Sorry for not putting all the meat on the bone.

All of the work will take place in the UK.
The contract will last for at least 6 months.

My company will be paid at the beginning of the month, with my intention to pay the subcontractor monthly at the end of the month for the work done.

As soon as my US client has decided to end the contract, then my company will get 60 days notice, and the sub will be paid for the work done and the sub will receive one months notice of the contract ending.

I hope that helps.

Tell your subbie to either get a Ltd Co or pick an umbrella company then make sure you cover your ass with a watertight contract between the two of you.

PZZ

**TykeMerc** · 20 July 2009, 22:05

As I see it the main risk is that the Self Employed resource you're planning to use doesn't pay his tax and NI properly, if that happens HMRC can (and will) come after YourCo Ltd for the tax and NI owing as if he was a salaried employee of yours. Employers, employees NI and income tax will cost a lot if they do.

I believe that's one of the main reasons that Agents won't deal with people on a self employed sole trader basis.

**PhilAtBFCA** · 21 July 2009, 12:20

Sub Contracting

TykeMerc

The main reason why agencies dont use self employed people is ITEPA 2003 Chapter 7 , it basically means they cannot so its PAYE or Ltd Co.

DuncanC

You would be wise to engage a sub contractor as a Ltd Company, but thats not always the case. Two things you may want to consider here, 1) you do not want to run any risk of being an agency as different rules apply 2 )you may want to consider ir35 in your relationship with the sub contractor

You may also not want to "tell your subbie" to get a Ltd Company. From your Ltd Company tax point of view you would not want to be telling anyone that. What you may want to do, if you so decide, is to advise that you are prepared to engage only with a Ltd Company ( if you are sure thats what the situation is ).

All of this needs more detail than has been given so far. They are not huge issues but you may want to have a chat with an accountant before you go ahead. It may even mean that a self employed subbie would be possible, for instance.

Phil

Subcontracting to self employed INDIVIDUAL