Can I decide to be self employed?
ACURRENT hot topic in tax is the ongoing drive by HMRC to have as many people as possible taxed as employees. The collection of tax becomes much quicker, the employer collects the tax and National Insurance Contributions (NIC) and HMRC also gets an additional 13.8% NIC from the employer. Employers and employees are now asking themselves if the workers can opt to be self-employed to avoid employer NIC and to improve cash flow. The answer is yes and no! You must look at the contract with your workers and what actually happens in practice to determine whether workers are employees or self-employed.
Normally, having become self employed, workers see the benefit in incorporating and operating through their own limited com- pany (personal service company). This means that instead of income tax at rates of up to 45% plus NIC the company pays tax at 19%. The worker can then take remuneration as a mixture of salary and dividends reducing the tax and NIC payable. This has been very popular planning for many but in April 2017 legislation was introduced for companies carrying out work for the public sector. The contracting Department has to decide whether the person doing the work is really an employee or self employed. If they decide they would be an employee the payment to the company is subject to PAYE/NIC.
The problem is that officials deciding this are often not qualified to make such decisions. HMRC expects people to use their online tool to determine employment status but our experience has been that it is not fit for purpose and does not include important factors. We have successfully challenged HMRC in cases where they have determined the worker is employed rather than self employed. Unfortunately, HMRC is now consulting on extending these rules to the private sector and we expect, as with the public sector, the decision makers will want to err on the side of caution and treat the payments as subject to PAYE and NIC. To find out more or to book a free initial consultation contact Tom Penman, Tax Partner, Baker Tilly Mooney Moore on 028 9032 3466 or e mail firstname.lastname@example.org