Hi,
Hope someone can help with my tax question, any advice would be great.
A friend helped me launch my business in 2011/2012 and put in a considerable amount of hours, mainly doing copywriting for the eccomerce site and replying to customer emails.
I was not able to pay him any wages, he was just a friend helping out. BUT due to successful year so far 2012/2013 I'm considering giving him some money for the work he did.
Is it possible to account for his wages in the 2011/2012 tax year, and withdraw the cash out of my bank this? We aren't talking huge sums here, £1,500.
Cheers, Sim
Replies (6)
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Hi
Read the post below which I put up - I think it might cover what you want to do with your accounts. However, it's more about tangible items, not wages. So if it's not applicable, someone on here will steer you in the right direction.
https://www.accountingweb.co.uk/anyanswers/question/transfer-assets-sole-trader-business
Clarify the facts
"Is it possible to account for his wages in the 2011/2012 tax year"
Yes - you could accrue for a bonus in your accounts to be paid subsequently within 9 months of your accounting date. You imply that you are preparing accounts for the tax year - are you a sole trader, rather than a company?
When you make the payment, it will be subject to PAYE as £1,500 exceeds the NI contribution thresholds for a month and if he has another job, he will be subject to income tax at 20%. Have you set up a PAYE scheme? I would certainly not try backdating the payment to the 2011/12 tax year, because you will be laying yourself open to penalties for failing to file the annual PAYE return in time.
Or perhaps, you could treat him as a self-employed sub-contractor, which would avoid the PAYE problems, but put the onus on him to file a personal tax return for 2012/13. The problem with treating him as self-employed is that "replying to customer emails" sounds rather like an employment. The decision between employment and self-employment is your responsibility. Get it wrong and the Revenue could be after you for the PAYE you should have deducted but didn't.
White space
... is a grey area! Some say that HMRC never looks at it. Others that it is like waving a red flag. I don't like entering anything in the white space.
Nor do I think there is any need for you to do it in this case. If your friend did the work in 2011/12, it is quite correct that the charge should be made in 2011/12. There is nothing unusual for you to disclose.