UK Question on commission payments

[gwhelan100]

I process the payroll for a very small UK entity, consisting of 2 employees. This is processed using payroll software and all taxes and national insurance deductions are treated correctly and paid to HMRC in a timely manner.

This business also pays monies in the form of commission to some of its volunteers (who are not otherwise paid any salary or remuneration). This commission is for generating sales income for the company. The way I am asked to process this is to pay the gross amount of the commission to the employee, once I am given a signed/authorised expense claim/commission claim form.

I am concerned about the tax treatment of this? Should these payments go through the payroll? For example, volunteer A will submit a commission claim for £300 to the manager, who authorises the claim. I then pay £300 to the volunteer via internet banking - no tax or NI is deducted and I am not reporting anything to HMRC. I am in effect treating the commission claim as I would an invoice from a supplier

I would appreciate some guidance on this matter from anybody with experience of such an arrangement? Thank you

 

[Becky]

Welcome to the forum

Employment status is a complicated matter, and can sometimes be difficult to determine. It is not sufficient to state whether you intend to treat someone as an employee or as a self-employed contractor - instead it depends on the nature of the engagement between the two parties. There are many factors which must be taken into consideration, and the position is not always clear. This is a topic which is often looked into by HMRC during the course of a PAYE review, so it is important to get it right. For example, if you engaged the services of a contractor and paid them gross, but on review HMRC determine that the nature of the engagement is actually that of employment, then they would treat the money paid to the individual as having been paid net, and you as the employer would be liable for the grossed up tax and NICs. Scary stuff!

HMRC have issued guidance on the matter here: https://www.gov.uk/employment-status/overview

HMRC also have a tool which can help you work out whether someone is employed or self-employed: Employment Status Indicator Tool (follow the link at the bottom of the page)

Hope this helps!

 

[gwhelan100]

Hi Becky - thanks for your reply, I will check those links and tools, much appreciated.

Looking forward to using the forums a lot more!

 

[Becky]

You're very welcome

 

[Tungsten]

Can I ask a question .. sorry to hi-jack the thread.

If the 'Self-employed' person receives the money from an overseas company(gross), is the 'Self-employed' person obliged to declare ALL the payment, or could they defer or spread over two TAX years?

Hope that is clear what I am asking - Thanks

 

[Becky]

If a self-employed individual does not declare all of their income, that is called tax evasion...

 

[Tungsten]

Hi Becky,

Thanks for your reply, avoiding was not the intent, but spreading so to speak ...But I get your point!