Being self employed for an employer

youngmoney_2

Hi Guys,

This is either a brainwave or an incredibly dumb question that's been asked a thousand times before, my apologies if it is the latter.

Let's say you worked for "corporation x" as an employee for a couple of years, the money is good, you have a great relationship with your boss and you know your job is pretty secure but you are (as normal) getting screwed by Mr Taxman.

Now let's say that you discuss with your boss the opportunity of ending your contract with the company, registering as self employed and then having the company "outsource" the job you were doing directly back to you at the same rate of pay as you were receiving before.

Therefore you'd be sitting at the same desk, doing the same job but on a temp contract for the firm and being self employed.

This would obviously give you more paperwork to do but would it be worthwhile doing it from a tax aspect???

WHA

The employer wouldn't agree in the circumstances you describe.

It is not a matter of "choice" between you and your employer whether you are self employed - it is a matter for the HMRC to decide according to current law and regulation.

If you act like an employee, regardless of whether you claim to be self employed, HMRC will regard you as an employee and want the tax and NIC from your employer - your employer is unlikely to want to take this risk.

To make it work, you'd need to be truly self employed - in particular you would need the right to send someone else to do your work instead of you, be paid according to work done, instead of time taken (to create risk and reward), be responsible for correcting bad work in your own time and at your own expense etc.

Many firms do it but they have to do it properly to prove employment instead of self employment. For example, it is very common in the haulage business - the drivers "rent" their lorries/vans and are liable to rent them whether or not they do any work, so they take on a "risk".

youngmoney_2

Thanks WHA. So if I understand correctly, if you are officially self employed, and your previous employer takes out a contract for your services at a rate and terms that you both agree on and this contract is over an extended period of time, HMRC would still view you as an employee??

I'm maybe missing a big point here but if this is the case I cannot understand how they differentiate between somebody who is carrying out a genuine contract and somebody who would be doing this.

mrs_deadline

It's such a myth that you can save loads of tax by going self-employed!

Being SE I can deduct legitimate expenses to reduce my tax bill slightly, but bear in mind, that's only because I'm paying out of my own pocket for things an employer would normally stump up for.

NI is lower, about 8% of taxable income I think, but for that I get no sick pay, no holiday pay, and just the minimum state pension to look forward to.

It certainly makes no sense to work for the same rate of pay as before. Why would anyone choose to sign away all their employment rights and make their job less secure without charging a premium to cover the extra risks?

Employers would be rubbing their hands with glee if they could get away with this, which is partly why HMRC has rules against it.

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PS youngmoney: didn't see your follow-up - you have to show you're not completely dependent on one client for your income, so having income from several different sources would be one way to prove it. Or as WHA said, having a contract that allowed you to take on other work and subcontract your work out.

Tallymanjohn

Yes, SE status would only really benefit your employer as they wouldn't have to pay their cut of your NI, unless you had a lot of taxable overheads you could claim for. The big problem would be that you are still only working for one 'employer' - if you check the DirectGov website, it's one of the main definitions of being employed rather than SE.

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/WorkingAndPayingTax/DG_4015975

youngmoney_2

Bing! Well that all makes sense, another idea bites the dust .

What you've all said makes complete sense though so cheers for the replies

Dragon_Lady_3

When you are Self Employed, if you carry out work for the same Company for a certain length of time [I think its six months, but can't be certain] then Mr Tax Man will regard you as being 'employed' by said Company.

Therefore, you will have to do some work for other Companies on a Self Employed basis to break up the time restriction.

Hope that makes sense.