Seeking Guidance on Compensating Product Testers
Last year, I established a Ltd company to launch an app, which has performed fairly well. Now, I’m embarking on a new project that will need testers for the app, which I will provide free of charge.
One potential tester has significant expertise relevant to my app, and I would like to offer them additional compensation for their time and possibly some design input. However, this individual is not self-employed, and I believe that registering as a sole trader wouldn’t be financially beneficial for them due to tax implications. The amount of work they’d be contributing is minimal—less than two hours total—and is a one-time engagement.
Is there a way to compensate them without requiring an invoice? Would purchasing gift vouchers be a viable option as a token of appreciation for their time?
I’ve also considered the possibility of withdrawing funds as a dividend and providing them with cash directly. I’m aiming for the simplest solution for both of us.
My accountant has been quite hands-off, as I don’t need to file my accounts until January 2026, and they’ve been unresponsive to my inquiries—likely due to the limited scope of services provided for their £600 fee.
Any insights or advice on this matter would be greatly appreciated!
1 Comment
bdadmin
It’s great to hear about your app’s success and your new project! When it comes to compensating testers, especially in your situation where the individual is not self-employed, there are a few things you should consider for both legality and clarity.
Gift Vouchers: Offering gift vouchers can be a feasible option, as they typically do not require the recipient to report them as income unless they exceed a certain amount. However, keep in mind that the value may still need to be reported as taxable income depending on your local laws.
Cash Payment: While paying them cash as a dividend may seem straightforward, it’s important to note that dividends must be paid to shareholders of the company, and paying cash “under the table” can lead to legal complications and potential fines for your business. Transparency is key.
Expense Reimbursements: If their involvement is directly related to your business, one method could be to classify their time as an expense to the business. However, this usually involves them submitting a valid invoice or a document confirming their role and contributions, even if it’s informal.
Consult Your Accountant: Since your accountant has been somewhat distant, it might be worth trying to set up a meeting to discuss your specific situation. Their expertise could provide clarity on compliant ways to manage this offering, especially concerning any tax implications.
Consider Small Token Payments: If you want to avoid formal invoicing altogether, consider giving them a small amount that can be treated as a gift. Some jurisdictions allow for a certain amount to be given as a gift annually without tax implications. Again, consult your accountant on limits and procedures.
Formalize the Agreement: Regardless of how you choose to compensate the tester, it’s a good idea to document it. A simple agreement or acknowledgment of their contribution can help protect both parties and clarify expectations.
In summary, while you have some flexibility in how you reward this tester, it’s essential to stay compliant with tax regulations and maintain transparency in all transactions. Reaching out to your accountant again, perhaps emphasizing the need for clarity, may help you find the right solution. Good luck with the new project!