wrongly seen as self employed

cowsnhope

Hi
My last employer told me I was self employed so I registered with the Inland Revenue - however I have done the test on line and I wasn't self employed for a lot of reasons and my employer should have paid my tax. I've phoned the Inland Revenue and they say that because I registered as self employed I would be treated as having been self employed even though I wasn't. I only stayed in the job because I thought I wouldn't have to pay my tax as the pay was awful - do I now have to pay my tax even though my employer should have paid it?
Thank you very much

Quentin

If you made a profit, then you are liable to pay tax on it (subject to the usual tax free allowances).

(Had you been on PAYE, your employer still wouldn't have paid your tax for you!)

Pennywise

cowsnhope wrote: »

I only stayed in the job because I thought I wouldn't have to pay my tax as the pay was awful - do I now have to pay my tax even though my employer should have paid it?
Thank you very much

Even if you'd been an employee, the tax and NIC are deducted from your wage, so you'd have paid the tax, not the employer.

Why did you think that you wouldn't have any tax to pay because you were self employed - the self employed pay taxes too!

McKneff

You had to pay tax one way or the other

Either deducted from you wage or directly to the HMRC

So I dont understand where you are coming from.

heretolearn_2

It doesn't sound as if it will make much difference to you. Everyone has a tax allowance and if they earn under that, then they won't pay tax. If, as you say, the money was so 'awful' that you are below that threshold, then you wouldn't have paid tax through PAYE and you won't pay tax as self-employed. For last year, to April 2011, the threshold was £6,475, and this year it is £7475. If you earned less than that you do the tax return and it'll show zero tax due.

If your earnings were above that, you'll pay tax at 20% on the amount that is over the threshold, but that would have been exactly the same if you were on the payroll as well. Employers don't pay tax for you - they deduct it from your wages and send it off to the HMRC on your behalf, but it still comes out of your money.

So if you earned £10,000 you get 7475 tax free and pay 20% on the balance of £2525 = £505 tax per year. Self employed you pay that in one lump sum, employed you'd have £42 per month deducted from your pay. (these figures don't take into account NI, simplified just to explain how taxation works).

In fact as self employed you only pay tax on your profit, not your whole income, so it can be advantageous. You need to deduct your allowable expenses off your income, before working out your tax. So again if you earn £10,000 perhaps your expenses work out to £500 per year, so your profit is only £9,500. Take off the 7475 and you are left with £2025 to pay tax on = £405 to pay. So you save £100.

Quentin

heretolearn wrote: »

It doesn't sound as if it will make much difference to you. Everyone has a tax allowance and if they earn under that, then they won't pay tax. If, as you say, the money was so 'awful' that you are below that threshold, then you wouldn't have paid tax through PAYE and you won't pay tax as self-employed. For last year, to April 2011, the threshold was £6,475, and this year it is £7475. If you earned less than that you do the tax return and it'll show zero tax due.

If your earnings were above that, you'll pay tax at 20% on the amount that is over the threshold, but that would have been exactly the same if you were on the payroll as well. Employers don't pay tax for you - they deduct it from your wages and send it off to the HMRC on your behalf, but it still comes out of your money.

So if you earned £10,000 you get 7475 tax free and pay 20% on the balance of £2525 = £505 tax per year. Self employed you pay that in one lump sum, employed you'd have £42 per month deducted from your pay. (these figures don't take into account NI, simplified just to explain how taxation works).

In fact as self employed you only pay tax on your profit, not your whole income, so it can be advantageous. You need to deduct your allowable expenses off your income, before working out your tax. So again if you earn £10,000 perhaps your expenses work out to £500 per year, so your profit is only £9,500. Take off the 7475 and you are left with £2025 to pay tax on = £405 to pay. So you save £100.

Strange maths??

How does he "save" £100 if he had to pay out £500 in expenses?

Surely your example means being self employed has actually cost him £400, not saved him £100? Or are you an accountant?

heretolearn_2

It doesn't sound like an actual business with expenses, Quentin. So I was thinking along the lines of allowance for use of part of room at home as an office, bit of stationery/printer inks etc etc....nothing that the OP wouldn't be spending anyway. So it would be a saving.

Quentin

Ahh.

You mean by fiddling his return and claiming £500 for items he hasn't actually used he can save £400?

Are you an accountant?

agrinnall

I'm not sure that what HMRC have told you is correct, if you are an employee (and it sounds as if you are) then it is the employers responsibility to collect and pay tax and NI. I can't see that the fact that you registered as self employed has any bearing on this. As you are no longer employed there I would expect you to be asked to complete a tax return (or more than one if you were employed for more than one tax year) and have to pay the tax that you owe (not sure what would happen about employee's NI, you may need to speak to the NI Enquiries help line about that, 0845 302 1479 or check on saynoto0870.com for a geographic alternative) and your ex-employer will be chased by HMRC for employer's NI.

cowsnhope

agrinnall wrote: »

I'm not sure that what HMRC have told you is correct, if you are an employee (and it sounds as if you are) then it is the employers responsibility to collect and pay tax and NI. I can't see that the fact that you registered as self employed has any bearing on this. As you are no longer employed there I would expect you to be asked to complete a tax return (or more than one if you were employed for more than one tax year) and have to pay the tax that you owe (not sure what would happen about employee's NI, you may need to speak to the NI Enquiries help line about that, 0845 302 1479 or check on saynoto0870.com for a geographic alternative) and your ex-employer will be chased by HMRC for employer's NI.

Hi
I think I've made this too confusing. It is my understanding that my employer was liable for deducting my tax and NI from my wages as you've said - and that if my tax is not paid then my previous employer will be chased for this and not me as she ought to have made this deduction and paid my tax - however HMRC have told me that because I mistakenly registered that I now need to pay. HMRC are asking me to complete a tax return but I can't see why this would be right if I wasn't self-employed; the direct.gov.uk website clearly says I wasn't. My employer never gave me a contract of employment so my wages before or after tax were not written down. I have been paying my own NI contributions which probably won't help my argument here. I was previously advised by the organisation through which I got this job that I could not be made to pay this tax as the responsibility was my employers... was this advice wrong?
Thank you for your help

Quentin

As you have been paying s/e NI contributions, you haven't much hope in now claiming you were an employee!

And as you were self employed, then your "employer" wouldn't have given you a contract of employment.

It seems the advice you were given was misleading (regarding self employed people getting tax deducted by the "employer"), and maybe you need to get some face to face advice over this.

Your local tax office may be able to help - phone their advice line, or maybe CA can help sort this out.