HMRC is running a campaign for ‘direct selling’ until 28 February 2013, his guide from the ACCA, explains more.
Direct selling usually involves door to door selling or selling in a customer’s home or in a customer’s workplace. Direct sellers are commonly referred to as:
- agents
- consultants
- representatives
- distributors.
The actual process of selling may involve demonstrating products to customers at their home, workplace, at a party or by using catalogues which may be given to friends, relatives or anyone else. The income earned by the ‘seller’ will usually be a commission on the sales made. The time involved will not be relevant, so it could be part time or a full time commitment.
HMRC generally views direct sellers as self-employed and therefore the seller is responsible for informing HMRC what they earn and for calculating and paying any tax and national insurance due. This is the general view: not all direct sellers are considered to be self-employed, a simple way to test is if you – or a client – say yes to all of the following questions:
- do you have responsibility for your business?
- can you decide how and when you do your work?
- are you paid on a commission only basis?
- do you risk your own money in setting up and running your business?
- do you receive no holiday or sick pay from the company you represent?
- can you hire other people to help you or do the work for you?
It is worth noting that an individual can be both self-employed and employed at the same time.
The campaign targets direct sellers who started trading before 6 April 2011 and have not informed HMRC. To encourage compliance, HMRC will give the best terms available in terms of penalties if income is disclosed voluntarily and any tax and national insurance owed is paid. HMRC may also allow payment of any outstanding tax and national insurance by instalments; however, this is discretionary.
If you have any clients who are direct sellers, they can contact HMRC by post, via email or via the online form on HMRC’s website. They must tell HMRC about:
- all income, gains, and other liabilities owed
- following the guidance the amount of interest due for the late payment
- assess the correct level of penalty to reflect why the right amount has not been paid in the past
- pay what is owed.
Details of HMRC’s direct selling campaign, access to the online form and how to calculate any sums owed is available on HMRC’s website.