most efficient way to pay 'commission'

T

threebedsemi

Registered User
Messages
253
I'm the director of a ltd company who offer professional services. We have recently made contact with an individual who is in a position to put some work our way.

We would like to 'look after' this person in the most tax efficient way for both of us. He is currently in paye employment.

if we simply pay him a lump sum 'finders commission' for example, he will have to declare this as income and will be hit for 40% income tax + levy + whatever else-is-on-the-cards on it.

anyone have any experience or ideas in this regard?

thanks
 
If this individual is in paid employment in a company that is giving you work, then the notion of giving him money would sound dodgy to me. If that's not the situation, aplogies for the inference!
You do need to be sure that whatever you do, it doesn't involve a conflict of interest on the part of this individual.
 
There is nothing dodgy going on. he works with a company who is not in competition with ours, nor is it in a position where it needs our services directly. its simply that he makes various contacts, via his current position, with people who are interested in the services which we provide.
we would like to 'thank' him for any concrete business forwarded our way, without it costing us ott and while making it worth his time and effort...
its not at the stage (yet) where he would consider setting up some kind of company to invoice and take payments through, although we asked him to consider this as it would be the most sensible way of doing it for us as Caveat suggested..
 
I don't see an issue here -- at least, not unless somebody wants to be dishonest.

You pay him an amount you think appropriate, record the payment in your accounts, and treat it as an expense in your P/L a/c.

He receives a payment, and his tax affairs are his responsibility. It would be a good idea to tell him that you are putting the payment "through the books"; he might figure out that it is a good idea to include it in his tax return.
 
thanks for the comments, simplicity, as always, seems to be the best solution...

i assume that it would be prudent to note in writing to him that the payment is a gross payment and that he is liable for all taxes etc. in case he acts the maggot and if caught claims that he assumed that it was a nett payment?
 
threebedsemi said:
i assume that it would be prudent to note in writing to him that the payment is a gross payment and that he is liable for all taxes etc. in case he acts the maggot and if caught claims that he assumed that it was a nett payment?
Click to expand...

I'd consider that to be very sensible.
 
threebedsemi said:
i assume that it would be prudent to note in writing to him that the payment is a gross payment and that he is liable for all taxes etc. in case he acts the maggot and if caught claims that he assumed that it was a nett payment?
Click to expand...

I'm not sure that writing a note to the individual who is not an entity registered for tax would remove your obligations in relation to taxation. This may have worked 20 years ago, but in the last 10 years, the onus has moved back on the employer/client in relation to tax compliance.

If I were you, I would get taxation advice from an accountant before making any payment to such a person. For one, it's not clear here about how VAT should be charged. Secondly, it is also not clear who is liable for paying the personal income tax/PRSI etc..

One possible way around the whole thing, and to remove any risk to you, is to register them as a part-time employee of your company (or an agency acting on behalf of your company), and pay them accordingly.
 
threebedsemi said:
There is nothing dodgy going on. he works with a company who is not in competition with ours, nor is it in a position where it needs our services directly. its simply that he makes various contacts, via his current position, with people who are interested in the services which we provide.
we would like to 'thank' him for any concrete business forwarded our way, without it costing us ott and while making it worth his time and effort...
its not at the stage (yet) where he would consider setting up some kind of company to invoice and take payments through, although we asked him to consider this as it would be the most sensible way of doing it for us as Caveat suggested..
Click to expand...
I think there is something strange or unusual about somebody receiving extra payments for something that comes up through their employment. Is his employer aware that you intend to pay him directly? Are his referrals to you a matter of company policy (at his employer) or a personal initiative? Are those who receive the referrals clear on this distinction? Will they be clear that he is getting a referral payment?

Bob_tg said:
One possible way around the whole thing, and to remove any risk to you, is to register them as a part-time employee of your company (or an agency acting on behalf of your company), and pay them accordingly.
Click to expand...
This sounds like an above-board solution, provided that his main employer is made aware of the situation.
 
I'm most interested in knowing whether the referrer works in the public or private sector, and whether his employer is fully aware of this cosy relationship as others have asked. Does he work in procurement?
 
By the sound of things, you could easily enter into an arrangement whereby he acts as a consultant-type to your business and, as you noted, put in place something that makes it clear he is responsible for all taxes. If he was acting as an employee (even if you didn't call him one), then you could be liable for taxes not withheld, but this does sound more like a contract for services arrangement.

I'd also second the caution that his employer should be asked if it's ok. The employer owns the rights to customer lists and contacts and may not be happy if the employee is using those contacts other than for the sole benefit of the employer. I know previous employers of mine wouldn't have been happy about it.

If you pay him commission (or any payment for his services), he's liable for tax on it like all other normal income - he'd report it on his tax return and pay his higher rate of tax on it, as well as PRSI, Health Levy, income levy etc. There's no way around that.
 
I wonder if people are making a mountain out of a molehill here. OP said there was nothing dodgy about the arrangement. From that I would infer that the intended recipient of the reward was behaving properly in relation to his employer.

I want to qualify the advice I tendered earlier. When I made my suggestion, I was looking at the lump sum idea mentioned in the first post. If there is a formula for computing the size of the payments, something like 10% of the price of each contract procured, then I would go along with the idea of treating the payments as PAYE income in the hands of the recipient.
 
thanks for the advice all, i have a much better feel for the mechanics of the whole thing now.
i wish to stress again that there is nothing 'dodgy' going and that no conflicts of interest will arise!
 
Padraigb said:
I wonder if people are making a mountain out of a molehill here. OP said there was nothing dodgy about the arrangement. From that I would infer that the intended recipient of the reward was behaving properly in relation to his employer.
Click to expand...
IMHO there is not enough imformation presented to conclude that there is 'nothing dodgy' here. In particular, the OP hasn't responded to the key question as to whether the referrals and corresponding payments are being made with the blessing of the referrer's employer or not.
 
Padraigb said:
I wonder if people are making a mountain out of a molehill here. OP said there was nothing dodgy about the arrangement. From that I would infer that the intended recipient of the reward was behaving properly in relation to his employer.

I want to qualify the advice I tendered earlier. When I made my suggestion, I was looking at the lump sum idea mentioned in the first post. If there is a formula for computing the size of the payments, something like 10% of the price of each contract procured, then I would go along with the idea of treating the payments as PAYE income in the hands of the recipient.
Click to expand...

I agree. The OP asked how to handle payments, not draw a conclusion on the ethics of the situation based on snippets of information, indeed the OP was clear that there is nothing dodgy going on and without evidence to the contrary it seems unreasonable and not a little insulting to do other than take him at his word.
 
Just another quick point that you should note is whether the commission will be subject to VAT or not. If the principal activity (i.e. the work/service that he is passing on to you) is VATable then this could well make the commission payment to him VATable also. For example if he is getting you customers for the sale of VATable items then it could be argued that the commission is liable to VAT. However if he is getting you customers for financial services (exempt activity) then the argument is that the commission is exempt from VAT. The above is related to the term "composite supply" in VAT terminology if you want to research it some more. The basic rule of thumb is if one supply is ancillary to a principal supply then the VAT rate is determined by the principal supply.

Hope the above helps in some way.
 
Henrieta said:
Just another quick point that you should note is whether the commission will be subject to VAT or not. If the principal activity (i.e. the work/service that he is passing on to you) is VATable then this could well make the commission payment to him VATable also...
Click to expand...

Surely that is relevant only if the level of commission is above the exemption threshold of €37,500? As I read the story, this is the only service the intended recipient will be supplying.
 
Padraigb said:
Surely that is relevant only if the level of commission is above the exemption threshold of €37,500? As I read the story, this is the only service the intended recipient will be supplying.
Click to expand...

More sense being talked. Don't make a mountain out of a mole-hill.
 
Padraig,

You are correct, only relevant if over €37,500 if it is the only service.

Purple, do you have some information on the level of commission that you want to share with us? If the provider is "putting work" other peoples's way that the OP is not aware of he may well be approaching the threshold noted above.
 
You must log in or register to reply here.
Back
Top