Hello,
I am wondering if you can advise on the following:
We occasionally rely on third-party individuals to carry out some work for us, we call them sub contractors. They are self-employed (responsible for their own tax and NI) and charge us a set fee which we pay through our business account. We are not VAT registered and neither are the ‘sub contractors’.
What is the best way to account for these? Post a regular purchase invoice for the individual or can I post it to a dummy supplier? Or am I doing it wrong altogether?
I was considering whether we shoud. I do not know if it makes any difference but we are a new small company, we are not yet drawing any money from it, wages or expenses, in fact it owes us a large amount of money as directors loans. We are not PAYE registered.
It sounds as though you are a new limited company. As such, you will need a PAYE scheme in order to pay yourself salaries through the company. As @Paul_Courtier says, if you are using subcontractors, then you may have to make the PAYE scheme also a CIS scheme. At that point, I would recommend payroll/cis software and the one I use is Payroll manager by moneysoft.
Thank you all for your replies @rhc thanks for that link.
On reading it, it appears that the IR35 rules do not apply on several grounds:
• The subcontractor work is not regular at all, no set hours . There is no pattern at all. The most I have used for example was twice and two different people.
• They agreed to aa fixed price regardless on how long it takes to do the job. They do not get paid o/t or bonuses
• They provide all their own equipment
• They work for others
@Bagpipe we will be unlikely to pay wages in the next 6 months. We are yet to repay back the directors loan. So I assume as long as we do not pay wages we do not have to register for PAYE, or do we have to register and explain that no wages have been paid?
If we wanted to account for unpaid wages, so that they can be paid in arrears when the company turns in enough money, how could we do this?
Forget wages for a second. It’s not about wages. The only correlation is that you need a paye scheme to pay a subcontractor. A lot of people confuse the two. Please bare that in mind.
So do you plan on paying the sub contractor now or when you have some available funds?
If you plan on paying them now then you need to decide if cis applies and you need a paye scheme if it does, regardless of whether you pay anyone a salary. It’s irrelevant.
Also I should add, that the directors loan account has nothing to do with your obligations under cis or any other scheme that you may need to administer in the process of your trade.
I knew the wages and director loan were a completely separate question that I had thrown in there. I paid the contractors as they completed the jobs, we are only talking a couple of hundred pounds not thousands.
I could do with a consultation with an accountant to be honest as I do want to do the right thing. If you know of someone who does not charge an arm and a leg, please let me know. Thank you
To be honest, quite a lot of accountants would be happy to provide a free consultation to discuss what you may or may not need to do.
With regards to the cost involved in book keeping, vat, accounts etc, it depends whether your confident enough to do it yourself or not.
Various fees depending on accountant but bare in mind if you pay peanuts, expect monkey’s. In reality though a decent accountant is likely to save you far more than you pay.
@Paul_Courtier it’s a Plumbing & Heating company, if we need the help of another plumber/heating engineer, and send them to do the job on our behalf, is that not considered sub-contracting? Genuine question!
I’m not arguing whether someone is a sub contractor or not, my argument was whether cis may apply.
It all comes down to what your sub contractors do for you
If for example they are replacing existing heating systems etc then no cis doesnt apply. If however you sub contract them to install a new heating system, cis may apply.
My original point was for you to seek advice or at least clarification. I don’t know what your subcontractors do. only you would know that.
My point was that the op didn’t specify the trade, and CIS only applies to the construction industry. Just because they call them sub-contractors, doesn’t mean that CIS applies, it can apply to a whole host of industries, including ours. I sub-contracted for quite a few years and we still employ sub-contractors. I find it’s always best to check first and not make assumptions.
Plumbing and heating doesn’t necessarily come under CIS unless you are in the construction industry, but yes it is sub-contracting. So yes, set up a supplier account for the sub-contractor and post their invoice to it as you would with any other supplier.