PAYE or Self Employment? 28 September 2006 at 12:21PM edited 30 November -1 at 1:00AM in Employment, Jobseeking & Training 13 replies 1K views

theanimallover

Hi, I hope I have posted this in the write place - I am new here...I just wondered if anyone could help me...

I am self employed working from home for for 3 different companies at the moment.
I have been offered a new project for 10 hours a week, this is ongoing work and I have just been asked if I would like to be PAYE or self employed.

Is there any advantages to being PAYE?

Astaroth

Given that you are still self employed on the other jobs then I personally would say no. The benefit of PAYE is that (almost) everything is done for you but given that you are already having to do tax returns etc. If you are doing the normal thing of being a limited company to mitigate your tax liabilities then you would lose this for the money earned from the new project if it is done as PAYE

theanimallover

Thank you for your answer, I'm not very bright on these matters, I will stick with being self employed for all of my work.
I am not a limited company as I don't charge enough! I only earn about £200 a week at the moment....

Astaroth

A limited company doesnt actually "cost" anything (other than £35 initial fee) but obviously there is paperwork that goes along with it. For a small company it is possible for a person to do it all without the help of an accountant but then you probably wont be able to get the tax savings which are achievable without one. The other consideration of cause is that an Ltd is a legal entity in its own right so if someone sues the company they can only claim what the Ltd company owns where as in your current situation as a sole trader then there is no difference between you and the company and so anything you earn could be forced to be liquidated to pay debts/ court cases etc

theanimallover

Thanks you for all your help........I will look in to being a limited company, although I only do research, telesales etc from home, nothing that anyone could sue me over, it is something I should find out about...would you know where to find more info?
I always do my own tax returns. When my partner was self employed as a ground worker on a building site, I used to be able to get him more tax back than all the others on the site who used an accountant... :-)

Savvy_Sue

theanimallover wrote:

Is there any advantages to being PAYE?

Holiday pay, Statutory Sick Pay, possibly access to a company pension scheme, Maternity Pay.

Not disagreeing with what anyone else has said mind you, but these are the obvious benefits of PAYE. Even if you're only doing 10 hours pw, that's 40 hours pay each year that you don't have to do any work for. Plus if you're sick, you are entitled to SSP, and if the company gives full pay for any initial periods of sickness, you get that too.

If there's a possibility of this contract being long-term or growing, these things things are worth thinking about. Of course, if you stay SE you ought to get a higher hourly rate in recognition of the fact that you're NOT getting holiday pay etc.

Oh, and just to point out that in reality the decision is NOT yours or the company's to make, it's for HMRC to decide, and it might be worth taking advice from them, because the company could be in for a big bill if they decide to make you SE and HMRC later says they were wrong to do so.

theanimallover

Sorry for such a late return to the board!
I didn't realise any of that. I am working for a person, who is running a website by herself, she has just taken on me and one other and she asked me how i would like to be paid S/E or PAYE. I do other S/E work for different companies too...
Should I tell her that she needs to talk to the inland revenue?

Also, I have worked P/T before, cleaning and doing other jobs, and never had any holiday pay as each one I was working only 10 hours, has that changed? If i say yes to PAYE will I definately get holiday pay?

Savvy_Sue

theanimallover wrote:

Also, I have worked P/T before, cleaning and doing other jobs, and never had any holiday pay as each one I was working only 10 hours, has that changed? If i say yes to PAYE will I definately get holiday pay?

Yes. Employers HAVE to give 4 weeks PAID leave each year. So if you work 10 hours pw, that's 40 hours pay over the course of a year.

oldnick

Savvy_Sue wrote:

Oh, and just to point out that in reality the decision is NOT yours or the company's to make, it's for HMRC to decide, and it might be worth taking advice from them, because the company could be in for a big bill if they decide to make you SE and HMRC later says they were wrong to do so.

No it's not up to HMRC. that would only be the case if you were only working under an exclusive contract for one customer. As you are working for a variety of people there are no pro's to being paid under PAYE for one job.

An obvious disadvantage is that as you have other income the company would be obliged to deduct tax at basic rate ie 23%.

It could also lead to complications over the expense you claim against income.
PAYE is just the governments way of maximising the tax take and has no advantage whatsoever. Obviously you should expect a higher hourly rate to compensate for the lack of holiday pay.

On that subject many small companies require you to work for 9 months before you have any holiday entitlement in any case. Remember that the 20 days annual holiday can include the 8 public holidays which you only get paid for if you would normally work them. Although public servants (People paid with your taxes) get a day in lieu if they don't normally work them, most people in small businesses do not.

sarahlouise210

oldnick wrote:

No it's not up to HMRC. that would only be the case if you were only working under an exclusive contract for one customer. As you are working for a variety of people there are no pro's to being paid under PAYE for one job.

An obvious disadvantage is that as you have other income the company would be obliged to deduct tax at basic rate ie 23%.

It could also lead to complications over the expense you claim against income.
PAYE is just the governments way of maximising the tax take and has no advantage whatsoever. Obviously you should expect a higher hourly rate to compensate for the lack of holiday pay.

On that subject many small companies require you to work for 9 months before you have any holiday entitlement in any case. Remember that the 20 days annual holiday can include the 8 public holidays which you only get paid for if you would normally work them. Although public servants (People paid with your taxes) get a day in lieu if they don't normally work them, most people in small businesses do not.

You are not correct in saying it is not HMRC`s decision if a job can be considered S/E or PAYE. Just because the OP is self employed in other areas of their work does not mean that they can automatically be treated as S/E at the new employment. If there is doubt, call in at your local tax office with a copy of any contract you have been given. The point you make about expense claims is one of the reasons that HMRC DO have the final decision - however even under PAYE ..certain expenses can be claimed.
Also... the basic rate of tax is 22% ...not 23%;)
Also..why expect a higher hourly rate because of lack of holiday pay ....if someone is S/E they are not someone elses employee .. so why should they receive holiday pay??????

hilary1

sarahlouise210 wrote:

You are not correct in saying it is not HMRC`s decision if a job can be considered S/E or PAYE. Just because the OP is self employed in other areas of their work does not mean that they can automatically be treated as S/E at the new employment. If there is doubt, call in at your local tax office with a copy of any contract you have been given. The point you make about expense claims is one of the reasons that HMRC DO have the final decision - however even under PAYE ..certain expenses can be claimed.
Also... the basic rate of tax is 22% ...not 23%;)
Also..why expect a higher hourly rate because of lack of holiday pay ....if someone is S/E they are not someone elses employee .. so why should they receive holiday pay??????

Perhaps expect a higher pay is the wrong use of words. Rather take into consideration that you will not get HP when self employed and should account for that in your hourly charge.