Can you take someone on, on a self employed basis?

jexygirl

I have a friend who has only self employed people. They have been there for some time. As I understand it, and I could be wrong, the loophole of self employed benefits was changed some years ago.
As I now understand it, and don't quote me, I am going on what I am told, rather than what I have personally researched, it is a very IFFY and greyish area.
To employ someone on a self employed basis, they must be on an as and when required basis, ie. must not do the same hours every day, or week so cannot work 8-4 the same days each week. I have employed self employed chefs for example, but they invoice me for their hours, which are never the same week to week or even day to day, hours wise, and its for a temporary amount of time (say 3 weeks or whatever) through an agency.
As I understand it, your husband could not sub contract a self employed person for say 9-5 monday to friday every week as the hours and times would be pre set therefore not ad hoc. The hours would need to be on an as and when required basis, and differ day to day or week to week, otherwise, it would be construed as a "normal" job, and set hours, in which case he would need to be employed by you.
I could be wrong, and as I say, its not something I do, unless in an emergency when I need cover for personal reasons, and then its through an agency to whom I pay extortionate fees ( maybe I need to start an agency!)
Jex

Savvy_Sue

jexygirl wrote: »

To employ someone on a self employed basis, they must be on an as and when required basis, ie. must not do the same hours every day, or week so cannot work 8-4 the same days each week.

We have staff employed on an 'as and when' basis: but it's when WE require them so that makes them employed.

If we said "We want this work done and we don't mind when it's done, and if you're not free you can send someone else to do it", then that would (probably) make them self-employed.

Not doing the same hours each week just means that they are on that 'as and when' (or zero hours) contract: if they worked the same hours every week for a few months and then you said "no more work" then they MIGHT have grounds for saying "But you've had me regularly doing these hours, that means by custom and practice I have a contract for that, you can't just drop my hours like that."

These are two separate issues: employment vs self-employment, and casual work vs regular hours.

jexygirl wrote: »

I have employed self employed chefs for example, but they invoice me for their hours, which are never the same week to week or even day to day, hours wise, and its for a temporary amount of time (say 3 weeks or whatever) through an agency.

It sounds as if those chefs are employed by the agency, rather than by you, and that your contract is with the agency. So not your problem what their contract says, and a different situation to what the OP was asking about.

fengirl_2

To sum up this discussion, could I please urge the OP (from long experiecne as an Inspector of Taxes), to take proper advice on this. There are penalties for not treating people as employees when they should be - not only in terms of tax and NIC but under employment law as well. Proper advice from HMRC who are told the full facts is no substitute to the well emaning posts on here.

DCodd

I agree with fengirl, you need proper advice here. Too many people put the emphasis on the wrong criteria when it comes to determining employment status, even the HMRC employement status tool is not that accurate and is not legally binding as a decsion.

From my perspective (in the constuction industry) the main criteria is the risk of financial loss but it differs from sector to sector. Being able to send someone else to do the job is only really required in theory as few sole traders will have ever substituted their labour yet would still be regarded as self employed. As for consultancy, the sector employed (or self employed) in is vital. Just check how many IT consultants have fallen foul of status issues.

silverjay

This is a discussion I am having with my employers at the moment as I feel several of the "self-employed" staff working for us actually fall under the "employee" status even though they hold CIS registrations.

We have several people who work for us who are over 65 and work "as and when" and we pay employer's N.I. for.

Then we also have several fitters/engineers who are CIS registered and validated and do not have contracts of employment. These fitters work for us 5 days a week 8.00 - 4.30 and my employers tell them where they are working and move them around during the day and we also provide the materials for the job.

My employer's reasoning for them being "self-employed" is that we cannot provide them with guaranteed work throughout the year, even though the majority of them have been working 5 days a week for the last two years. My interpretation of HMRC regulations is that they should be classed as employed and we should be operating PAYE and they should be on some sort of "as and when" contracts. Obviously my employers also want them to be classed as self-employed so that they don't have to pay employer's N.I., holiday pay and be liable for redundancy payouts if the work does fall off.

This puts me in a difficult position as I operate the payroll system and complete the monthly returns. I have pointed out to them on several occasions that should we have a HMRC inspection then they could find themselves in a position of having to repay at least the value of the employer's N.I. contributions plus maybe any interest the Revenue feel is due on the underpayment.

Savvy_Sue

Since you operate the payroll system, do you not have a responsibility to phone HMRC and get a definitive ruling? Regardless of whether your employer wants you to or not ...

Pennywise

Savvy_Sue wrote: »

Since you operate the payroll system, do you not have a responsibility to phone HMRC and get a definitive ruling? Regardless of whether your employer wants you to or not ...

You won't get a definitive ruling from HMRC - the best you'll get is the tax inspector's own opinion. Only the courts can give you a definitive ruling. Given the large number of cases dealth with by the appeals/tribunal/court process, it seems that there is a lot of uncertainty with the tax inspectors losing a lot of cases, just as the "employers" also lose a lot of cases. I'd strongly advise not to ask HMRC with or without your employers consent as they'll give a biased answer in their favour in case of doubt.

If you have to take advice, then ask your firm's accountant - as they know the business, they're far more likely to give a reasoned response and help you make changes to secure the position of them being self employed - as often a small change in the contract and working relationship can be the difference between employee & self employed.

I'd also suggest that contacting HMRC without your employer's approval may not be a good career move for you!!

Also, worthy of note is that your employer may well have tax enquiry insurance to cover their costs of defending themselves in case of tax enquiry, investigation or disputes. Many of these policies prohibit contacting HMRC in advance for employee status reviews, so by contacting HMRC directly you may well be breaching your employers insurance policy which may jeopardise their position in case your enquiry leads to a full on tax investigation.

At the end of the day, you're the employee - by all means make your views known to your employer, but that's the end of your responsibility. If your employer is happy with the way they do things, then you should just accept the situation. How do you know that the employer hasn't previously taken advice on the situation from their solicitors, accountants, or even HMRC themselves? Are you privy to the contracts between the employer and the subbies? Do you really know the exact working relationships?

Savvy_Sue

Fair enough. As ever, you give good advice!

silverjay

Pennywise wrote: »

You won't get a definitive ruling from HMRC - the best you'll get is the tax inspector's own opinion. Only the courts can give you a definitive ruling. Given the large number of cases dealth with by the appeals/tribunal/court process, it seems that there is a lot of uncertainty with the tax inspectors losing a lot of cases, just as the "employers" also lose a lot of cases. I'd strongly advise not to ask HMRC with or without your employers consent as they'll give a biased answer in their favour in case of doubt.

If you have to take advice, then ask your firm's accountant - as they know the business, they're far more likely to give a reasoned response and help you make changes to secure the position of them being self employed - as often a small change in the contract and working relationship can be the difference between employee & self employed.

I'd also suggest that contacting HMRC without your employer's approval may not be a good career move for you!!

Also, worthy of note is that your employer may well have tax enquiry insurance to cover their costs of defending themselves in case of tax enquiry, investigation or disputes. Many of these policies prohibit contacting HMRC in advance for employee status reviews, so by contacting HMRC directly you may well be breaching your employers insurance policy which may jeopardise their position in case your enquiry leads to a full on tax investigation.

At the end of the day, you're the employee - by all means make your views known to your employer, but that's the end of your responsibility. If your employer is happy with the way they do things, then you should just accept the situation. How do you know that the employer hasn't previously taken advice on the situation from their solicitors, accountants, or even HMRC themselves? Are you privy to the contracts between the employer and the subbies? Do you really know the exact working relationships?

I have run it through the employment status indicator on HMRC website which indicates that these fitters should be classed as employed.

Yes I do know the exact working relationships. It is only a small firm and the directors have little business experience as they were originally engineers themselves and decided to take on the company when the original directors wished to retire due to ill health. I was kept on from the original company to run the office.

There are no written contracts. The work is to be provided when available. They are paid hourly against timesheets submitted weekly. They provide their own transport and tools but the company provides all materials required for the job. Since early 2008 these people have worked 35-40 per week. My employer tells them where to work and when and they move from site to site during the day.

I am not trying to get at my employers here I am actually trying to protect them from possible prosecution for underpayment of employer's N.I. I did discuss it with our accountant who said it would be advisable for them not to be working for us 5 days per week.

There is no legal insurance in force regarding HMRC inspections but we have recently been offered this by our accountant but my employers feel this is a waste of money.

As you say at the end of the day it is not my problem but I am the one who would be handling any HMRC inspection and having to answer their questions initially.

Bean_Counter

silverjay wrote: »

As you say at the end of the day it is not my problem but I am the one who would be handling any HMRC inspection and having to answer their questions initially.

I have no advice to offer beyond the excellent post by Pennywise, just to say that there are no doubt many accountants in the same position as you. I have wrestled with the employed / self employed issues in the construction industry many times, and as Pennywise said, have talked to our accountant's about it. I also fully documented that discussion in case I might need evidence in the future that we considered the issue and the outcome, rather than just ignoring it.

All you can do is the best you can and I would agree with you that you are trying to act in the best interest of the firm.