Self-employed to PAYE queries!

Suzzi120

Hi there,

After some employment advice which I am hoping some-one from a HR/legal perspective can help with….. I work for a large organisation. I have been a “contractor”, self-employed and invoicing the company for the work I’ve done for almost 3 years (in July).

There have been some recent changes within the organisation and a change of departmental management. I have been told that the company is being audited (presumably by HRMC) and that affairs regarding employment are being looked into by HR. For the time that I have been employed there many people have been employed as “contractors” and “freelancer workers” without issue.

The HR dept have been in contact and said that because of the amount of time I have worked for them - legally they can no longer keep me on as a “contractor” -self-employed.

I have been offered a permanent full time staff position - PAYE by my new boss who is acting as the go-behind for the HR dept but from what I’ve read online and taking the employed or self-employed quiz (HRMC) I understand I should be an employee but also you can’t be self-employed for one employer for an extended period of time which I think it 2 or 3 years….

It is great news I have been offered a permanent full time PAYE position on staff but there few questions that I can’t get my head around –

I’m looking for some clarity on the points below:

How long can you be self-employed with one employer is there a time-limit on it before the employee has to offer you a position and is this legally binding?

The company has had to pay tax on what I’ve earn with them regardless of me being a “contractor, self-employed” and despite that fact the company is a registered as a charity in UK? Is that a true or false statement?

Salary expectations were agreed to be £35 per annum and my boss has come back with a figure of £32 per annum claiming that he has had to factor in and deduct 16% for tax and NI but that company benefits such as the company pension scheme (available within 6 months) would “top this up”.
The deductions made for tax and NI is that a true or false statement or should this have been calculated on top of the agreed salary figure?

All employees in April got 3% - 5% pay-increase do you think it is fair that I do not qualify for the 3% - 5% salary increase despite 3 years continued service? Your own opinion, just trying to gauge if this unreasonable, personally I don’t think it is for the length of service (3 years).

Other PAYE employees in the company, have rolling contracts with no expiration date – The contract I’m being offered has an expiration date valid until Dec 2012 and then renewed accordingly, I am being told that is because of the divisional changes within the department and that my job role might change. I am concerned because of the expiration date (no one else has an expiration I checked). This doesn’t seem right in comparison.

Any advice you can offer would be great - Thanks!

Suzi.

PlutoinCapricorn

Welcome to MSE. You have raised an issue that many members have warned would-be self employed people about i.e. HMRC audits. I hope that you will get responses from the experts soon, but in the meantime I have a few comments.

I myself became self employed because being an employee was not for me, so have never been in your position. When I get an assignment, I make it clear to clients that I don't count on any more work from them. I don't think that anyone is obliged to offer a permanent position to a self employed person after a certain time. The whole point of using the services of freelancers and contractors is that you can get rid of them when the work runs out. If HMRC decide that someone is a retrospective employee, I might expect some employers to dispense with their services. I would expect the employer to be asked to pay Employers' National Insurance retrospectively, but am not sure about the income tax: surely the self employed person has already paid it.

The charity sector is no different from any other; if HMRC see regular payments over the long term to an individual, they will wonder why this person is not on the payroll.

Employers are free to offer whatever terms and contract types they like. You are equally free to accept, decline or negotiate with your "go behind"! It seems to me that this charity is not very professional: they should make it clear whether the figure quoted is gross or net annual salary.

agrinnall

To my mind you were never self employed, and the action by HMRC seems to agree with this. Employer and employee are not in general entitled to decide between self employment and employment, that is decided on the facts of the job being done. Length of continuous service is one of the factors contributing to this, and 3 years would be a huge red flag to HMRC that this is in fact employment.

InsideInsurance

Suzzi120 wrote: »

How long can you be self-employed with one employer is there a time-limit on it before the employee has to offer you a position and is this legally binding?

The company has had to pay tax on what I’ve earn with them regardless of me being a “contractor, self-employed” and despite that fact the company is a registered as a charity in UK? Is that a true or false statement?

Salary expectations were agreed to be £35 per annum and my boss has come back with a figure of £32 per annum claiming that he has had to factor in and deduct 16% for tax and NI but that company benefits such as the company pension scheme (available within 6 months) would “top this up”.
The deductions made for tax and NI is that a true or false statement or should this have been calculated on top of the agreed salary figure?

All employees in April got 3% - 5% pay-increase do you think it is fair that I do not qualify for the 3% - 5% salary increase despite 3 years continued service? Your own opinion, just trying to gauge if this unreasonable, personally I don’t think it is for the length of service (3 years).

Other PAYE employees in the company, have rolling contracts with no expiration date – The contract I’m being offered has an expiration date valid until Dec 2012 and then renewed accordingly, I am being told that is because of the divisional changes within the department and that my job role might change. I am concerned because of the expiration date (no one else has an expiration I checked). This doesn’t seem right in comparison.

To answer your questions:

1) There is no limit how long someone can be a contractor for. The longer you have been with a client the harder it becomes to justify you aren't actually an employee but I've known contractors been with their clients for 10+ years

2) If it was decided you were always an employee despite your contract then yes the employer would have to pay the relevant taxes and NI that they should have been paying. Charitable status doesnt impact employers NI etc to the best of my knowledge.

3) Your contract should state your gross salary. Your payslip will then show your gross, the deductions and the end net salary that is what will actually hit your bank account. Sounds like he has a bucket of money and is having to offer £32,000 as there is additionally Employers NI which is on top of your gross salary, accruals for bonuses, pensions etc

4) You are setting up a new contract, salary negotiations are perfectly acceptable as your terms will be changing and you have to consider employee benefits -v- the cash element of being a contractor

5) Sounds like they are making you a fix term employee which evidently makes it easier to remove you at the end of the contract but not as easy to remove you as it was when you were a contractor. Again rates and benefits etc should reflect this

Suzzi120

[FONT=&quot]Just touching on what you've mentioned here if HRMC did decide I am employee from when I started there 3 years ago. I'm not personally liable for any taxes or contributions due right?
[/FONT]
[FONT=&quot]Because I've been doing my self-assessment online, filing the necessary paperwork for self-employed status any-thing HRMC deems the company owe is on them right? No liability on me personally. I don’t want to get lumbered with a massive tax-bill because they haven't been playing by the rules.[/FONT]

PS. I just wanted to a big thanks for all your responses so far you've all been really helpful!

agrinnall wrote: »

To my mind you were never self employed, and the action by HMRC seems to agree with this. Employer and employee are not in general entitled to decide between self employment and employment, that is decided on the facts of the job being done. Length of continuous service is one of the factors contributing to this, and 3 years would be a huge red flag to HMRC that this is in fact employment.

InsideInsurance

The vast majority of the tax and employee NI will have already been paid via your self assessment anyway. The difference will only be the tax on those things that are allowable expenses for a self employed person and not for an employee so the exact amount will vary depending on how much you stretch your expenses.

My very basic understanding is that you would be the one liable to pay the short fall in employee NI and income tax, if there is any, and your client/employer is liable for the employers NI. I could be wrong on this point though as you're stretching my knowledge.

Going forward, if you like the cash rich element of contracting then the ways to avoid all these issues is to worth through an umbrella company. You can reduce the risks, and increase your cash, by setting up your own service company but you then get into the territory of IR35 which is another mine field of HMRC legislation which is possibly going to come back in focus due to all the recent news paper articles about top civil servants that are off payroll

HappyMJ

To be truly self employed with most companies you need to be trading through a limited company that contracts with the client. If you are a sole trader is is much harder to prove that you are genuinely self employed.

Normally contracts are negotiated on an hourly rate or a daily rate. You would never negotiate an annual salary.

You can be self employed your entire life there is no time limit.

Notmyrealname

Suzzi120 wrote: »

I’m looking for some clarity on the points below:

How long can you be self-employed with one employer is there a time-limit on it before the employee has to offer you a position and is this legally binding?

Basically it is dodgy from the start as your position didn't truly qualify for self employment.

The company has had to pay tax on what I’ve earn with them regardless of me being a “contractor, self-employed” and despite that fact the company is a registered as a charity in UK? Is that a true or false statement?

False.

Salary expectations were agreed to be £35 per annum and my boss has come back with a figure of £32 per annum claiming that he has had to factor in and deduct 16% for tax and NI but that company benefits such as the company pension scheme (available within 6 months) would “top this up”.
The deductions made for tax and NI is that a true or false statement or should this have been calculated on top of the agreed salary figure?

An underestimation actually. They have no tax to pay but they do have employers NI at 11.8%. They also have to pay you holiday pay which is approximately another 12.6% so overall it costs basically 25% above the salary the employee gets to employ someone.

All employees in April got 3% - 5% pay-increase do you think it is fair that I do not qualify for the 3% - 5% salary increase despite 3 years continued service?

Yes because you weren't working for them so you haven't 3 years service with them and what they paid their employees is irrelevant.

Other PAYE employees in the company, have rolling contracts with no expiration date – The contract I’m being offered has an expiration date valid until Dec 2012 and then renewed accordingly, I am being told that is because of the divisional changes within the department and that my job role might change. I am concerned because of the expiration date (no one else has an expiration I checked). This doesn’t seem right in comparison.

Any advice you can offer would be great - Thanks!

You are in a no better or worse position than you were before apart from the fact HMRC can't come chasing after you.

Notmyrealname

Suzzi120 wrote: »

[FONT=&quot]Just touching on what you've mentioned here if HRMC did decide I am employee from when I started there 3 years ago. I'm not personally liable for any taxes or contributions due right?

Oh yes you are. You will be liable for Class 1 NIC and you will have to pay all the tax that you didn't pay on the expenses you claimed. You'll be billed for that, not your client.

When IR35 hit the IT contracting sector, people got bills of £1000's.

PlutoinCapricorn

This is very interesting, and will help others in the same situation.

What happens in the future is one thing, the past is quite another matter. It seems a real can of worms.

If Suzii is classified as having been an employee right from the start, shouldn't she be given some holiday pay retrospectively? I understand about the expenses: you can't have it both ways.

We have not had much information about what actually happens when HMRC make this ruling, so it is very useful.

Suzzi120

Interesting comments- thanks for the feedback!

I haven't really claimed much in the way of expenses over the years only the basics on my self-assessment nothing outrageous so that's probably a good thing if the tax man comes a knocking. I think from the posts below coming an employee despite not clearing as much per month is in my best interests – still think I need to re-negotiate on salary, times are hard and I love shoes!

Going forward, if you like the cash rich element of contracting then the ways to avoid all these issues is to worth through an umbrella company.

Few years ago I did some work through an umbrella company and it is was a hideous experience - whether it was just that umbrella I don’t know but they were an absolute **** take with hidden surcharges – very shady almost to extent I had to get legal advice – personal preference – avoid umbrella companies like the plague.

shouldn't she be given some holiday pay retrospectively?

Yes please!