Self-employed but only working for one company?

charl09

Hello, I'm hoping that someone may be able to offer some advice. I have been self employed for the past 16 years but have only really carried out work for my father's company in this time (aside from the odd few jobs here and there). My accountant has never questioned this but after completing my 08-09 returns he said that I would need to provide invoices for 09-10. I had not provided invoices before.
Having provided invoices showing that I only worked for my father's company my accountant has advised that the Inland Revenue don't like this and will have to make changes for 10-11. Having read a few web pages about this I'm unsure as to whether I should be officially employed (which I don't really want to do), be a sub-contractor (which I don't really understand) or continue to be self employed but invoice customers directly and bypass my father on some jobs. If anyone can offer advice on what is the best option I would be really grateful.

Thanks

Emmzi

without wishing to be cheeky, aren't you paying your accountant to give you this advice? What isn't clear to you?

KiKi

There's absolutely nothing wrong with being self-employed and only doing paid work for one person - I do at the moment.

However, HMRC apply certain rules to this set up to determine whether or not you are self-employed, or whether you are deemed 'employed' as far as they are concerned. This is because some employers force their 'employees' to be self-employed to avoid paying tax, NI and other employer responsibilities.

You have to determine whether or not you are an employee under their rules. See this little test here as a guide. If you...
...can decide what to do, where to provide your services, when to work and how you do your work
...risk your own money in your work
...can make a loss as well as a profit from your work
...provide the main items of equipment you need to do your job
...are free to hire other people to do the work you have taken on, or to take on helpers at your own expense
...are responsible for correcting unsatisfactory work in your own time and at your own expense

...then you can be deemed self-employed. If you don't satisfy these, then you really should be on the payroll.

Another test of 'employee' status is:
Do they have to do the work themselves?
Can someone tell them at any time what to do, where to carry out the work or when and how to do it?
Can they work a set amount of hours?
Can someone move them from task to task?
Are they paid by the hour, week, or month?
Can they get overtime pay or bonus payment?

If so, then you should definitely be on payroll, and employed.

As Emmzi said, this is really what your accountant should have explained to you, not just said "they frown on it." That's not helpful as you don't understand why, and now you're wondering what to do next when actually you may not need to do anything.

Determine which you are first before you take any action. Don't try and fool HMRC by bypassing your dad, though - not a smart move.

I work only for one client, but I can turn work down, do it at a fixed daily rate, in my time under my rules, with my equipment on my premises. I only do a day or so a week, but I spend the rest of the time writing so I don't work for anyone else.

HTH And you might need a better accountant than one who still refers to the "Inland Revenue" and doesn't explain to you *why* there might be a problem so you can understand it.
KiKi

smartpicture

Actually I would suggest that it is your dad who should be getting some better advice, because it they decide that you are not in fact self-employed, it's your dad's company that will be facing a massive bill, not you.

PlutoinCapricorn

As others have said, the accountant should have made sure that you understand what HMRC look for and why. HMRC are cracking down on employers who try to escape responsibility and costs by making their workers be self employed: this means no payroll runs, holiday pay, sick pay, redundancy money etc. These unfortunate workers are controlled and given orders as if they were employees, so they get the worst of both worlds.

If HMRC did investigate your father and discovered regular payments to you over the long term, they would ask why you were not on the payroll. If they were not satisfied that the work relationship really is suitable for self employment, they might want many years' worth of employer's National Insurance and yours and your income tax to be paid to them by your father. The fact that both you and your father may be happy with the current arrangement is not relevant.

Self employed people should always invoice their clients, and charge enough to cover periods of illness, shortage of work etc. Sometimes self employed people sign a contract with their clients that makes it clear that they are working on a self employed basis.

So your first step is to decide what the arrangement would look like to HMRC. It does seem like employment to me, and you are right in that in such cases an umbrella company is often the solution.

charl09

Thanks all for your help, your advice is really useful and I'll go back to the accountant armed with this info.

Uncertain

KiKi wrote: »

There's absolutely nothing wrong with being self-employed and only doing paid work for one person - I do at the moment.

Yes........

However I think you overstate this a bit.

Whilst I agree it is possible to be in this position in certain circumstances this point is quite a big one on the list of self employed / employee questions.

In my experience you would need to tick quite a lot of boxes on the other side to tip the balance when you only have one client!

seafarers_wife

Do research into IR35. there is a website ive used in the past at work. www.shout99.com which is really helpful. HMRC can audit your accounts and as has already been said depending on what they find, if they think you fall foul of IR35 (basically being treated as an employee) you could be fined and they can also go back 20 years in very severe cases!

KiKi

Uncertain wrote: »

Yes........

However I think you overstate this a bit.

Whilst I agree it is possible to be in this position in certain circumstances this point is quite a big one on the list of self employed / employee questions.

In my experience you would need to tick quite a lot of boxes on the other side to tip the balance when you only have one client!

Of course, I fall into the 'certain circumstances', and yes, I agree that most people working full time for one client probably fall into 'employed'. Because I do so little paid work and most of my work is creative and for me, and I pick and choose my work, I do happen to tick a lot of the boxes!

I'm sure how I 'overstated' it though - I said there's nothing wrong with it (which there isn't), as long as you pass HMRC's test for it. That's factual, so I don't think it's overstated! I certainly don't think that every SE person with one client is in the same position as me, though - it's a lot of boxes to tick, as you say!

KiKi

tony1947

Hopefully this posting isn't seen as hijacking the OPs thread but as all the comments are so recent and very relevant to my wifes future working arrangements hopefully it won't be frowned upon.

My wife is currently employed as a director of a small family company with all the "normal" remunerations and taxes that go with being employed. Until a few days ago we had always assumed she would simply retire next year when she is 60. I have posted on other threads seeking advice on if we should defer her private pension and live off my income etc, she will only be eligible for state pension when she is 61yrs 3 months. Our view has always been that she will leave her employment and be retired either with or without a pension.

The reason for the post is that her employer has asked "would she mind doing a few days a month to help with the transition" Until reading Kikis post re the HMRC definition of being self employed we had simply assumed she would be as she is no longer working in the same sense as she was before. The problem is that she doesn't seem to fulfil all the criteria for either being employed or self employed.

The best laymans description of what she would be doing is a non executive director but I am not sure if that means anything to HMRC. We understand she will have to pay tax on any earnings but what is quite galling is that the employer and my wife would have to pay NICs (we think!). This doesn't seem right when if she simply stops working as we always thought she would she already has sufficient contributions to obtain her full state pension.

I understand the comments about getting advice from the company accountant but we don't want to be in a situation where there is any ambiguity with HMRC so how does one go about finding out the best way for the company and my wife to structure the arrangement that benefits all concerned including the government who potentially will get more tax than they would have.

We would be quite happy to raise invoices and keep accounts etc and complete all the other minutiae associated with being self employed.

Thanks for any comments and apologies to the OP if this posting takes us off piste.

getmore4less

We understand she will have to pay tax on any earnings but what is quite galling is that the employer and my wife would have to pay NICs (we think!). This doesn't seem right when if she simply stops working as we always thought she would she already has sufficient contributions to obtain her full state pension.

NI stop at state retirement age.

Much easier to just stay PAYE perhaps a zero hours type contract, work as and when and roll up the holiday paya as well to simplify that.