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Consultancy paid through employer

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Hi,

I've carried out some consultancy work arranged by my employer - My employer terms it supported consultancy where they receive a cut. I have a choice of myself being paid through PAYE or Gross. Obviously, if I receive the payment Gross then I will have to complete a self assessment and be subject to Class 2/4 NI. If I decide to receive the payment through PAYE, will I still have to pay Class 2/4 NI?

Cheers

Comments

  • chrismac1
    chrismac1 Posts: 2,585 Forumite
    I wonder if your employer has thought this through:

    1. Is your "consultancy" the subject of a separate legal contract specifying that it is consultancy and the terms of engagement?

    2. Has your employer carried out a full employer status review to determine that in regards to this work you are genuinely self-employed?

    In my view, given that you say you have a choice, the answer to both questions 1 and 2 is a clear NO. Employment status is not a matter of choice, it is a matter of the specific terms and conditions attached to the contracts involved.

    By definition, in the absence of a consultancy contract your work has been carried out under your existing employment contract in my view. If your employer fails to operate PAYE and NI in respect of this work it is an open goal for a hefty penalty from HMRC.
    Hideous Muddles from Right Charlies
  • daverave7
    daverave7 Posts: 263 Forumite
    Part of the Furniture 100 Posts Combo Breaker
    edited 12 January 2016 at 3:58PM
    My employment contract allows me to undertake a certain number of days of consultancy per year. On that basis, I can be paid through PAYE - so I assume that means Class 1 NI?

    p.s. After some reading, I may also have to pay the employer's NI contribution in addition to Class 1 NI. This makes being paid gross more attractive.
  • What makes you think you'd pay employers NI?

    What Chris says is correct. Simply being paid gross and operating as self employed doesn't make you self employed in HMRC's eyes as employment status is judged on the contractual and working arrangements.

    It's worth bearing in mind that if you take the self employed option, its your employer that is at risk for failing to operate PAYE and pay employers NIC, not you (so long as you are declaring your income and paying your tax).

    It might be worth taking HMRC's employment status tests. Do you have any degree of autonomy over how and where the work is performed? Are you obliged to take on the work? Will you be under any direct supervision and control? Do you have a right to provide a substitute?

    Will your net pay be the same in either case or will your employer be passing their employers NIC saving on to you? (I suspect not).

    I also suspect that this arrangement might be caught by the relatively new employment intermediaries reporting legislation, and if your employer is aware of this.
  • daverave7
    daverave7 Posts: 263 Forumite
    Part of the Furniture 100 Posts Combo Breaker
    My employer is a University. A typical university supported consultancy scheme can be found here http://www.reading.ac.uk/closed/res/ResearchSupportClosed/CollaboratingwithbusinessClosed/reas-REDCwb-Consultancy.aspx

    I doubt if there is anything going on that might conflict HMRC rules (but you never know!).

    However, I also have the option of being paid gross (there is a contract in place).
  • chrismac1
    chrismac1 Posts: 2,585 Forumite
    As it happens I've come across various arrangements of this sort with another top 20 university my sister works for. As with that university I think this document is skating on some pretty thin ice as follows:

    1. Employment status has been the single most "hot" tax issue in the UK since 2000.

    2. This is particularly the case with public sector bodies. BBC, many NHS trusts and even HMRC itself have all messed up on this, with resulting tax bills to pay.

    3. It would be interesting to know whether anyone has cleared this document with HMRC. Somehow I doubt it. As a matter of principle, the whole thrust of employment law in the UK in the last 15 years is that employment status is most definitely NOT a matter of choice between contracting parties, but down to the contract existing between them. A whole industry has been built up advising on contracts as a result.
    Hideous Muddles from Right Charlies
  • antrobus
    antrobus Posts: 17,386 Forumite
    What makes you think you'd pay employers NI?...

    Because the university is acting as an agent. They receive a fee from the business in return for the OP's services, and obviously, if they are going to put it through PAYE then the employers NIC is a cost that is going to come out of that fee.
  • booksurr
    booksurr Posts: 3,700 Forumite
    As I had "some" experience of university accounting it is perfectly normal for academic staff to have such contracts as they do indeed have "free" time to do as they please as a contractual entitlement. (The major issue was getting them to admit they had done any work at all during that period and therefore who has the IP rights)

    That covers consultancy work and if they choose to use the university to undertake the accounting work then they pay a commission for so doing. If they choose not, then they have to treat it as full blown self employed income and do their own accounting, their choice.
  • antrobus wrote: »
    Because the university is acting as an agent. They receive a fee from the business in return for the OP's services, and obviously, if they are going to put it through PAYE then the employers NIC is a cost that is going to come out of that fee.

    Right, I get that - effectively the same as an umbrella. But I thought OP was saying he'd have to pay it himself directly which didn't make sense.
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