Employment status, i.e. the issue of whether a worker is employed or self employed is THE biggest tax issue in PAYE terms and certainly the key area of focus by HMRC.when doing PAYE audits.

We continue to see employers push the boundaries in categorising many regular wage earners as "self employed" and we also continue to see HMRC heavily challenging such arrangements with no hesitation in taking things all the way to Tribunal to get the right result.

Make no bones about it, if an employer pays someone incorrectly as self employed when, for tax purposes at least, they should be employees under deduction of PAYE then the cost to the employer can be colossal if HMRC successfully challenge this in terms of additional tax, employer NI, employee NI, interest and penalties. Weightwatchers will testify to that having been hit for a bill in excess of £23m in 2011.

The tax rules are complex - see here for some of the common problem areas we have covered before. Professional advice is absolutely recommended for any business that hires workers on a self employed basis. Ignoring the issue, or taking advice "on the cheap", is not for the faint hearted !

Small businesses do not escape with this either. Many one-man businesses have been setup as limited companies to avoid being taxed as employees when providing services. BUT, IR35 can then bite which, although is great news for the hiring business as the tax risk is completely removed from them, the employed v self employed argument falls for the limited company to deal with - and to pay for, if it all goes wrong.

 

What support can Optimum PAYE provide ?

  • Employment status
    • Status review - consider current arrangements in engaging self employed workers and any risk areas or engagements
    • Process design - implement robust procedures and obtain HMRC approval thus reducing likelihood of major errors arising
    • Contract drafting (NB, completely in line with the actual working practices, i.e. not just a "tax friendly" contract)
    • Contract review
    • HMRC rulings
    • HMRC disputes including representation at formal Tribunals
    • Staff training e.g. for the hiring departments
  • IR35
    • Contract drafting (NB, completely in line with actual working practices, i.e. not just a "tax friendly" contract)
    • Contract review
    • HMRC rulings
    • HMRC disputes including representation at formal Tribunals

 

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