Can I de­cide to be self em­ployed?

Belfast Telegraph - Business Telegraph - - News - By­tom­pen­man

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 tom­pen­man@bak­er­tillymm.co.uk

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