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Expenses of finders fee to private individuals

Finders fee in a hiring agency

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We (hiring agency) want to run a campaign on our website to attract the general public to submit referrals.

Provided a recommendation was successful, the referrer will get 33% (1/3) of the finders fee the employer would pay to us.

e.g. If we get 7.5k in a fee from a client who has hired a candidate using our services we'd give 2.5k to the person who has sent the candidate our way.

From our perspective, there is sufficient value exchange (quid pro quo) between us (agency) and the referrer. Thus, we expect our payment to the referrer (2.5k) to be tax-deductible.

So, the first question:

1. Should we expect any questions/issues from HMRC when deducting these fees as expenses?

Another caveat is that 75% of referrers are private individuals without any business entity.

Thus, the second question:

2. What documentation is sufficient to cover our scenario from a tax reporting point of view?

Thanks in advance for helping me find an answer to these questions.





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By Matrix
02nd Dec 2019 06:21

I would get an accountant who knows your business to advise and get a lawyer to put the terms together so it is all clear.

Someone on this site (which is for accountants) advising if a payment is tax deductible for the business or taxable on the recipient is not really going to help you if the individual or HMRC ask you questions is it?

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