wrongly seen as self employed

BoGoF

If HMRC rule that you were an employee from Day 1 then they can retrospectively apply this ruling and tell the employer to cough up the tax/employees NIC/employers NIC that they should have deducted. It makes no odds that the 'employee' may have declared this as self-employed income.

I have sent plenty employers who have fallen foul of this and tried to save on employers NIC/sick pay/holiday pay even where the person employed has been declaring it as s/e for years.

There is no point phoning in cases like this. Put your points in writing and ask that it be reviewed by a status inspector/employer compliance

anniecave

BoGoF - but either way the worker would still need to pay tax. In your scenario, if the worker has already done self-assessment (or has even set up their own limited company) then they will have already paid tax if they have done it correctly.

The OP believed that they didn't need to pay tax if they were self-employed, which is wrong.

HMRC could prosecute for employers NI etc but this is a separate issue from the worker needing to pay tax.

With regard to whether someone is self-employed or not, it can often be a grey area. It would depend on who the company is and the nature of the work. The workers view of the work may differ from the company's!

OP have you done your calculations based on your tax allowances? Have you considered your expenses. Mileage? Telephone/internet expenses? Depending on the nature of the job there may be other suggestions?

Are still self-employed? You can de-register for NI if you are no longer self-employed and stop paying NI contributions (or get an exemption if your earnings are low - but you may not want to do this if you want to build up your NI contribution record).

BoGoF

anniecave wrote: »

BoGoF - but either way the worker would still need to pay tax. In your scenario, if the worker has already done self-assessment (or has even set up their own limited company) then they will have already paid tax if they have done it correctly.

With due respect, no they wouldn't. The sole responsibility to deduct PAYE/NIC lies with the employer and if they have wrongly treated them as s/e then they will pay. If the employee has already paid s/e tax/NIC then this may be deducted from the employers bill but if the employee hasn't paid anything then the employer stands to foot the whole bill.

As an aside if HMRC rule the individual was an employee this makes claiming any expenses a whole lot more difficult.

jimmo

If the OP has registered as Self-employed with HMRC then, at some time, maybe already, he will be required to complete a Self Assessment Return and he will have to complete it within the statutory time limit.
As the OP clearly considers that what he thought was going to be self employment was, in fact, an employment he should complete the employment pages and definitely not complete the self-employment pages.
When you complete the employment pages you are required to declare the gross earnings and the PAYE tax deducted.
If the OP declares his earnings from the disputed employment but states that no tax was deducted he is likely to receive an SA statement showing tax owing.
I have a feeling that he should declare his gross earnings and estimate the amount that the employer should have deducted, but, never having been involved in the processing of SA Returns, I am not sure.
Turning now to the question of whether there was employment or self-employment, legally speaking, HMRC cannot rule that there was an employment. HMRC can form a view and act upon it, but, whichever way HMRC "rules", anyone who disagrees with the HMRC "ruling" has the right of appeal. Ultimately the question of whether an employment existed or not is a question of employment law, not tax law.
If HMRC "rules" that an employment actually existed and that is accepted by all concerned then BoGof is correct that HMRC will require the employer to make good the tax and National Insurance the employer should have deducted from the employee's pay. In all probability there will be interest and a penalty to pay as well. That, if you like, is the employer's punishment for failing to comply with tax law.
There are no provisions under tax law to enable the employer to recover any of that money from the employee.
However, in my experience, it is not unusual in these circumstances for the payer (employer) to have got the payee (employee) to sign a contract (agreement) which contains an indemnity to the effect that if HMRC catches up with the payer and charges the payer with the tax, NI, interest and penalty then the payee will have to reimburse the payer in full.
If there is such a clause HMRC won't be interested. They will get their money from the employer and not be involved in any dispute between employer and employee.
Perhaps the first priority would be for the OP to share how much tax and NI is at stake here and how many tax years are involved.

Pennywise

BoGoF wrote: »

With due respect, no they wouldn't. The sole responsibility to deduct PAYE/NIC lies with the employer and if they have wrongly treated them as s/e then they will pay. If the employee has already paid s/e tax/NIC then this may be deducted from the employers bill but if the employee hasn't paid anything then the employer stands to foot the whole bill.

As an aside if HMRC rule the individual was an employee this makes claiming any expenses a whole lot more difficult.

Sorry that's wrong. If the employer gets landed with the tax/NIC, then the employer can rightly ask for the income tax and employees NIC back from the employee and can sue for that money back. It's only the employers NIC that lands squarely with the employer. And, of course, if they can't recover the money from the employee, then they have to stand that as well, but the point is that they can at least try legal routes to recover the tax and NIC.

My advice to the OP would be to declare it as S/e earnings on their tax return, claim as much expenses as possible (travel, postage, stationery, use of home, etc etc) which will reduce and maybe eliminate the tax completely. If they pursue the "employment" route, they may well find themselves being sued by the employer for full tax and NIC that should have been deducted from their "wages"!

ben.bayliss

Unless HMRC deem the monies paid to the 'employee' to have been paid over NET of the tax/NIC that they should have been deducting at the time? In that case, the 'employee' has already paid tax, it's just that the company never paid it over.

cowsnhope

Thank you all for your help - I think the way forward is for me to look into doing the self assessment as if I was self employed and to declare my petrol costs which were high - I've not done this before but I think I'll still get my tax free personal allowance so taking that into account as well as the petrol costs I should be able to reduce my expected tax bill a lot. Without your advice I might have put myself at risk of getting sued and it would've been very stressfull - and you've saved me money. Thank you so much.

cowsnhope

jimmo wrote: »

If the OP has registered as Self-employed with HMRC then, at some time, maybe already, he will be required to complete a Self Assessment Return and he will have to complete it within the statutory time limit.
As the OP clearly considers that what he thought was going to be self employment was, in fact, an employment he should complete the employment pages and definitely not complete the self-employment pages.
When you complete the employment pages you are required to declare the gross earnings and the PAYE tax deducted.
If the OP declares his earnings from the disputed employment but states that no tax was deducted he is likely to receive an SA statement showing tax owing.
I have a feeling that he should declare his gross earnings and estimate the amount that the employer should have deducted, but, never having been involved in the processing of SA Returns, I am not sure.
Turning now to the question of whether there was employment or self-employment, legally speaking, HMRC cannot rule that there was an employment. HMRC can form a view and act upon it, but, whichever way HMRC "rules", anyone who disagrees with the HMRC "ruling" has the right of appeal. Ultimately the question of whether an employment existed or not is a question of employment law, not tax law.
If HMRC "rules" that an employment actually existed and that is accepted by all concerned then BoGof is correct that HMRC will require the employer to make good the tax and National Insurance the employer should have deducted from the employee's pay. In all probability there will be interest and a penalty to pay as well. That, if you like, is the employer's punishment for failing to comply with tax law.
There are no provisions under tax law to enable the employer to recover any of that money from the employee.
However, in my experience, it is not unusual in these circumstances for the payer (employer) to have got the payee (employee) to sign a contract (agreement) which contains an indemnity to the effect that if HMRC catches up with the payer and charges the payer with the tax, NI, interest and penalty then the payee will have to reimburse the payer in full.
If there is such a clause HMRC won't be interested. They will get their money from the employer and not be involved in any dispute between employer and employee.
Perhaps the first priority would be for the OP to share how much tax and NI is at stake here and how many tax years are involved.

Hi again
I've just realised that I'll only be able to offset the tax on my petrol i.e. the tax on 40p a mile not the whole 40p and therefore have still - by my not very competent estimation - got a tax bill of over £1000 if I say I was self employed which I still believe I wasn't.

I did this job from August 2010 till July 2011 - I was paid £90 per shift, I say I was badly paid because the shifts were 24 hour ones - I did a fourteen hour day plus a sleep-in for the £90. I worked exactly half the week so for 11 months I earnt about £15000 plus holiday pay (another reason for me believing that I was actually employed - although this was paid at less than the minimum legal rate). I never signed anything to say that I would pay the tax - in fact I never signed or saw any paperwork at all - I know that other employees saw the job as cash in hand.

Jimmo - are you saying that I can't be sued if my employer is seen to have been my employer and I don't do the self-assessment? I really believe that I was employed because I applied for an advertised job and was interviewed and given it - I did not set myself up as self employed, I was managed and told what to do and when by my employer, my employer gave me the equipment to do my job with, I could not send anyone else to do my job for me, I worked regular hours which were set by my employer, I was given holiday pay, I had no control over how I did my work and was only paid for the hours I was there, my employer wrote to me saying she was my employer when she wanted to sack me.

many thanks

ceeforcat

I have to agree with jimmo on this. Certainly it has been my experience that HMRC has 'grossed' up the payment made to the 'employee' for tax. employee's NIC and employer's NIC and pursues the employer. HMRC have credited to this liability any amount paid by this 'employee' under self assessment or otherwise.