Interesting self Employed vs PAYE situation

JackofAll

I'm currently working for a new-ish enterprise (18 months old) on a self employed basis. I've been working for this enterprise for 12 months. During these 12 months I've worked for the enterprise full time and haven't had any income from any other work.

My understanding is that technically - from HMRC's point of view - I should be PAYE. There was talk of setting up a couple of 3-month contracts earlier this year but it never happened and I've been happy enough to carry on invoicing for my work each month.

I'm currently in the middle of negotiating a pay rise from £12/hr to £15/hr. A week ago my boss offered me £13.50/hr, with a promise to review in 3 months time and aiming to get me up to £15/hr within 6 months. I think he's doing as much for me as he can right now. He's recently started and part of his remit is to reduce costs and increase income to make the enterprise financially sustainable and move out of the 'start up' phase and into being a sustainable business.

I agreed to invoice at £13.50/hr for now with a promise to hassle him about the further increase in my wage in a couple of months time if he set me up as PAYE. I've calculated that being PAYE is worth about £2.5k over being self employed because of holiday pay and pension contributions.

At the end of last week I asked him for an update re. setting me up as a contracted employee. He said he'd spoken to our accountant and our accountant had "nearly had a heart attack" because if I was PAYE the company would have to pay NI contributions equal to 13% of my salary. So he's asked me to stay as self employed for the time being.

So my question is this:

In terms of negotiating a salary increase am I better off chasing becoming PAYE or chasing an increase in my hourly wage?

i.e.

Will I be better of earning £15/hr self employed or £13.50/hr PAYE?*

*Key factor is that although I'm currently self employed I'll now be invoicing for the same amount 52 weeks/year - so I'm going to be getting 'holiday pay' despite the fact I'm self-employed.

Thanks

Savvy_Sue

Whether you'd be better off s/e on £15 p/h or £13.50 ph PAYE isn't really the right question.

The question is why your employer / their accountant thinks the law doesn't apply to them.

HMRC have a handy tool for working out whether you are self-employed or not, and I'd suggest using that.

If HMRC realise what's going on then they will ask the company to pay the backdated tax and NI.

In what other areas are they ignoring the law?

bairn7

Agree with the above. Irrespective of what you agree, and even what any contract states, if you are considered to be an employee on the facts then HMRC will treat you as such.

JackofAll

Thanks for responses everyone - I've taken this up with my employer and should soon be PAYE