Looks like I am about to end up doing the tax returns for a friend.
They were employed (by a ltd company) on PAYE, working as an apprentice/labourer for a building firm. He always worked with the same person, who as far as I can tell was also on PAYE with the company (although he appears to be the employer/owner of the company). Payment was weekly by cheque.
For some reason (the versions I have been told seem questionable), my friend has been told that due to insurance both he, and the person he works for will have to become self employed. They have apparantly registered with the Revenue on the CIS scheme, where payment is made less 18% tax, with the balance settled on the tax return. Getting info is a bit hard - The employer tells him the changes, and he does little to question them (after all he is an 18 year old labourer not an accountant)
Obviously the change has effects on job security (no longer employed), holiday pay, SSP etc, need to pay for own insurance etc. I have concerns that the change is to suit the employer, and that this is not Self Employment as defined by the Inland Revenue, as he will still be working "for" the same employer, and paid the equivilence of an hourly rate.
As I will no doubt end up sorting out the tax return, I want to ensure that recording keeping is good from the start.
Payment will be in cash (I have concerns for an 18 year old, who is likely to keep no records and just spend!)
1) Is it likely that the revenue may question "self employment" status? If so would the consequency fall to the employee or employer? If a decision is made later that that there is employement rather than "self employment" would there be an additional tax liability due?2) What records should be kept? I see little scope for deductions (the previous employer is mentioning "benefits" such as claiming the cost of mobile phone bills, clothes etc - However in reality these are not business expenses, as I would anticipate that the only probably valid claim could be a pair of work boots!). Can anyone clarify valid expenses?
At the moment I have sugested getting a diary, writing in EACH day place of work, and entering every sum received. In addition all paperwork received to be filed in chronological order, retain all bank statements, retain copy of paying in slips. Is this too onerous? or should other information be collected? Does any record of "personal" - i.e no business expenses need to be recorded?
3) Do we need to produce accounts? i.e Balance Sheet/Profit & Loss statements? or is the return sufficient.4) As 18% tax is pay at source, is there a rough guide to calculate any additional tax liability? Being an 18% old I will need to ensure that this is saved each week, before it is spent down the pub! Any guidance?
Can anyone provide a bit of guideance?