Employed or Self Employed - who decides and how to change it

Bounceback

Hope I'm posting in the right place.

My husband is self employed in transport. One of the companies he works for has had a tax audit and the tax officer has decided that my husband is not a contractor but an employee.

I've looked at HRMC and it isn't clear cut one way or the other which category he falls into. We have invoiced the company + VAT and submitted our own tax returns.

The company for some reason submitted a P60 in my husbands name for 2 financial years with zero earnings and tax on.

How do we go about getting identified as self employed? I have been advised to write and appeal, but the conflicting information I got yesterday is enough to give anyone a headace.

If we appeal and it is ruled that he is an employee, any tips for sorting it out? I assume we will have to claim VAT back and then pass it back to the company my husband is working for, in addition we'll have to claim for benefits that were not paid (holiday pay). This goes back over 2 years, and it will be very difficult to separate this from other business. This is an unholy mess, and I know it is going to take forever to sort. So any advice you can give would help me so much.

Thank you very much for reading this.

PlutoinCapricorn

This is a very interesting post: we have many people asking in advance of taking on some work and being warned that HMRC might investigate a company and decide that someone is an employee in all but name, but I can't remember any cases reported on here where this actually happened. This information should help other people, and show that people must take the possibility of an HMRC audit seriously. I heard that they were cracking down on false self-employment, and this proves it.

I hope that someone with more knowledge will get on your case, but it would be useful to know whether he worked for other companies and could work the hours he wanted. Did he ever turn work down? If he worked regular hours for just one company for more than two years, it does seem that he was effectively an employee and the employer should have been deducting tax and NI and giving him paid leave. What about time off for illness?

When people are self employed, they usually charge 1/3 more than employees doing the same work would get, to cover illness and quiet periods. Was he doing this? What about the other people working there - any more cases like this?

ceeforcat

This is an unusual case, if I may say as you have other clients, are registered for VAT and submit invoices which goes some way towards a self-employment status. Obviously the employer is the one who now has to ‘sort it out’ according to the HMRC directive and put your husband under PAYE.

There are questions to be asked though. Did your husband ever work as an employee? If not, I am somewhat mystified as to why two P60 forms were submitted. (Sometimes this happens when an employee has remained on the books although he or she may not have worked for some years).

With regard to the status of the work, you have answered some of the more obvious questions. Here is some more which HMRC will use a guide to determining employment status:

Where do you work?
Do you provide your own equipment?
Who determines your hours of work?
How are you paid? Weekly, Monthly or upon completion of contract?
Do you have your own separate business account?
Have you a contract of employment with the ‘employer’? Is it a contract for services or a contract of service?

There are others but these and those that you have provided are the most common.

With regard to the tax position, I have come across different arrangements. In most cases HMRC will ‘gross’ up the payments made to you and add employers NIC and come after your employer for that amount. I have noted that some will credit the tax that you have paid against that amount (messy, I know but it has been done).

Good Luck.

Bounceback

thanks for you advice so far... in response to the comments:

My husband has been self employed for the last 20 years, not worked for anyone but himself, we have no idea why the company submitted P60's, one would be a mistake, but two??

If the end result is that my husband is an employee - we've checked the HRMC web site and it could go either way... then what figures are they going to work the tax out on? The tax officer wouldn't discuss figures with us as it is the other company she is going after. She has told us she will offset our tax against the bill.

Thanks for the luck - we'll need it!

seafarers_wife

have a look at www.shout99.com its a website that ive found particularly helpful in the past when dealing with limited companies and contractors. it sounds like somehow your husband has fallen foul of IR35 from what i recall (its been about 4 years since i had anything to do with it) but there used to be some very informative articles on there concerning IR35.

From what you have said your husband is operating his buisiness correctly, the company he was contracting to have somehow managed to screw things up, but defo look into it in greater detail as i wouldnt trust the company not to mess it up again in putting it right.

ceeforcat

Don't think that IR35 comes into this one. Don't suppose there is any chance of providing some details of the HMRC determination?

In any case there is at least one exHMRC tax inspector (retired) on here from time to time. Hopefully he will point you in the right direction.

Bounceback

Thank you, I don't have any details from HMRC yet as they won't give us any information, beyond stating that my husband is an employee. The company my husband has been working for have not given us figures yet. I really don't understand how we are going to separate this work from all the rest of the jobs we do as far as book keeping goes. And to go back over 2.5 years... pass the paracetamol, it is going to be a serious headache.

sunshinetours

Sounds like a "simple" status issue. Get your own accountant on the case here and get them to liase with the main contractors accountant to establish all the facts. This is an area where proper advice is essential.

Depending on the inspector dealing with this they areb likely to go for the main contractor and gross up the payments for PAYE and NIC. They may allow the income tax your husband has paid against this but there are limited cirumstances on how they can do this now, as they will say they are two different tax payers and therefore no set off, and most recent ones I've had this has been rejected and employer has had to go back to "employee" to try and get this tax back.

Also watch out for penalties under new regime

chrismac1

Do you have fee protection insurance? If so, get claiming now! These cases can be very complex. However, note that HMRC have a proud track record of losing lots of these IR35 cases, admittedly these tend to be ones where the victim has got the insurance and can match the taxpayers' money HMRC throw at the case. The mere fact that in HMRC's view your husband is "employed" does not make it so, and furthermore some of the cases HMRC pursue all the way to the higher Courts are utter jokes they really have no chance of winning. Any commercial organisation would not waste a fraction of the cash on them HMRC do, but unfortunately it's the public purse they are wasting.

Note these opinions are not merely my own, but shared by the majority of accountants who have followed the IR35 fiasco with growing disbelief over the past 10 years.

sunshinetours

chrismac1 wrote: »

Do you have fee protection insurance? If so, get claiming now! These cases can be very complex. However, note that HMRC have a proud track record of losing lots of these IR35 cases, admittedly these tend to be ones where the victim has got the insurance and can match the taxpayers' money HMRC throw at the case. The mere fact that in HMRC's view your husband is "employed" does not make it so, and furthermore some of the cases HMRC pursue all the way to the higher Courts are utter jokes they really have no chance of winning. Any commercial organisation would not waste a fraction of the cash on them HMRC do, but unfortunately it's the public purse they are wasting.

Note these opinions are not merely my own, but shared by the majority of accountants who have followed the IR35 fiasco with growing disbelief over the past 10 years.

Not disagreeing with your assessment of IR35 in general but we don't know if this is an IR35 case at all from these facts. I reckon this may simply be a sole trader being assessed as an employee using the HMRC status "toolkit" that they seem so fond of

Hopefully OP will take advice to see their accountant and establish the facts here and certainly hope the main contractor doesn't hang them out to dry as well

jimmo

ceeforcat wrote: »

In any case there is at least one exHMRC tax inspector (retired) on here from time to time. Hopefully he will point you in the right direction.

That will be me, I suppose.
Please bear in mind that I was a Status Inspector before IR35 came into being in April 2000, and before the status "toolkit " was introduced.
The basic principle that HMRC adhered to in my days was that the status question is a question solely about the relationship between a payer and a payee. Is there a master/ servant relationship or something else?
That particular question was commonly phrased as "is there a contract of service (employment) or contract for services (self-employment).
Whether the individual concerned is self-employed elsewhere is of no bearing on the status question but could well influence the practical application of the status decision. Certainly, in my day the status Inspector made the Status decision and, if the individual concerned had his main income from self-employment, the Inspector dealing with the self-employment accounts made the decision whether the employment could be treated as part and parcel of the self-employment and, if so he would authorise the issue of an NT (no tax) coding.
Coming back to the status decision the only clue we have is that the OP says her husband is in transport.
That really doesn't tell us much about what he does but, in my day the question of who provides the vehicle used was very significant following the Ready Mixed Concrete case on NI contributions.
http://www.hmrc.gov.uk/manuals/esmmanual/ESM7030.htm
This still seems very relevant.
http://www.hmrc.gov.uk/manuals/esmmanual/ESM4210.htm
As to the actual status enquiry, in my day it was normally pretty important to interview both the payer and the worker to get both sides of the story. This still seems to be the case but appears not to have been done.
See the third paragraph here.
http://www.hmrc.gov.uk/manuals/esmmanual/ESM0558.htm
As regards setting off of the workers self-employed tax paid against the PAYE due, we used to do that in a form of gentleman's agreement, frequently settling for the employer simply making good the Employer's NIC for previous years and making a fresh start but that backfired when the workers subsequently claimed repayment of their self-employed tax for previous years on the basis of the status decision. I thought HMRC had learned its lesson on that a long time ago but if the practice has crept back in, it can be exploited by the worker.
If the OP is prepared to share a lot more detail about the work her husband does we may be able to progress this but I stress that I know nothing about IR35 and whether it is relevant in this case.