Paying a director as self employed?

All tutors are freelancers, would a director tutor also be?

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My husband and I run an education business. Its main area is producing exams but we also do offer private tuition. We have a number of private tutors (teachers by day) who work for us a few hours a week, they are self employed and meet all the relevant tests to be classed as such. 

my husband's main job is as a teacher and he has self employment tutoring which has nothing to do with our business name. A tutor quit due to ill health and I had to get husband to take it on to not let down the student. As a result, I need to pay him the fee - parent pays me 100%, I pay the tutor 98%. The 2% is our fee for sourcing and goes towards our revenue. If I stick to the same rules, can my husband be paid as a freelancer since this isn't his role in the company? Or would his directorship mean I need to pay as an employee? For IR35 he does not meet the terms and is classed as self employed on the CEST test I did. 

99.9% of his income is unrelated to our business. We do not currently take any money out of the business otherwise (we aren't profitable) 

Replies (5)

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By David Ex
09th Feb 2024 18:11

You need an accountant.

Other professional bodies are available.

“If you intend to plan a course of action based on what you read in here, you should instead be taking professional advice.”

“They are not here to provide free accounting advice.”

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By Dougscott
09th Feb 2024 22:32

I always find it strange that people running a serious business ask questions on here instead of asking their accountant. Do you care to tell us OP?

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Replying to Dougscott:
By FactChecker
09th Feb 2024 23:33

Rather doubt that OP regards it as "a serious business" ... having posted: "We do not currently take any money out of the business otherwise (we aren't profitable)."

That's not to say that I don't agree with you - as *any* business needs to operate in full compliance with legislation (including the tax varieties).
But that *might* be OP's initial error - if treating the business like a hobby ('a little bit of fun on the side')?

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By I'msorryIhaven'taclue
10th Feb 2024 08:51

Given that you and your husband have been pumping money into a lossmaking (limited) company then why not let that company keep 100% of hubby's fees as its income? That way the fees won't suffer any tax (because they'll be offset by the company's accumulated losses) and your husband could then draw down 98% (or whatever percentage he likes) as a repayment of his Director's Loan Account (so no taxes involved there).

Conversely, if you go ahead with what you are proposing then hubby would be liable to income tax on his 98% wedge.

There.... problem side-stepped. And, as a Brucie-Bonus, a better tax outcome.

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By I'msorryIhaven'taclue
10th Feb 2024 09:03

I do agree with the others that you need to speak with an accountant though.

Your exposure for just 2% commission sounds like a very poor risk to reward ratio; not to mention you're sailing rather close to the wind on running an employment business. You do realise you're vicariously liable for the actions of your operatives, I hope?

Many of the businesses I've come across in this and other sectors where contracts are made B2C (education, care, house staff) tend to operate on a commission basis but without contractual involvement (so that, in your case, the tutor would contract directly with the parent and your company would take an introducer's commission). There are national and regional tutoring companies who contract directly with the parent and also pay the tutor - the way you are operating - but they charge a good deal more than your 2% margin.

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