Not an Employee?

[Shaggy]

I turned up for casual work at a new place earlier this week and was presented with a variety of paperwork. This time, instead of a "Contract", I was given a "Letter of Understanding" to sign. One of the clauses said "The parties agree that you are not an employee of x and that nothing in this letter is intended by the parties to render you an employee of x and you agree that you will not hold yourself out as such". There is another clause stating non-entitlement to benefit schemes.

 

I am being paid with tax deducted via PAYE, not providing any of my own equipment or insurance and being paid an hourly rate with hours set by the place of work. While not particularly annoyed about this clause as I am assuming it wouldn't hold up in court should that become necessary, I am curious as to why such a clause exists. Any ideas?

[theatrcymraeglampy]

Morning,

 

That is rubbish. If both NI & Tax is being deducted at source you are an employee of that company.

 

You could try using the HMRC's "Employment Status Indicator":

 

http://www.hmrc.gov.uk/calcs/esi.htm

 

Employed or self-employed? A guide:

 

http://www.hmrc.gov.uk/employment-status/index.htm

 

An extract from the guide:

 

In order to determine the nature of a contract, it is necessary to apply common law principles. The courts have, over the years, laid down some factors and tests that are relevant, which is included in the overview below.

 

As a general guide as to whether a worker is an employee or self-employed; if the answer is 'Yes' to all of the following questions, then the worker is probably an employee:

 

Do they have to do the work themselves?

Can someone tell them at any time what to do, where to carry out the work or when and how to do it?

Can they work a set amount of hours?

Can someone move them from task to task?

Are they paid by the hour, week, or month?

Can they get overtime pay or bonus payment?

If the answer is 'Yes' to all of the following questions, it will usually mean that the worker is self-employed:

 

Can they hire someone to do the work or engage helpers at their own expense?

Do they risk their own money?

Do they provide the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves?

Do they agree to do a job for a fixed price regardless of how long the job may take?

Can they decide what work to do, how and when to do the work and where to provide the services?

Do they regularly work for a number of different people?

Do they have to correct unsatisfactory work in their own time and at their own expense?

 

I'd suggest that you get hold of the HMRC to confirm whether you are an employee or self employed if you want a definitive answer. Whilst I could understand the company making you sign something to confirm you are not entitled to any of the benefits of there employed staff (gym membership discounts e.t.c who knows?) as casual staff are not always entitled to these benefits. The company telling deducting tax, ni, and then telling you that you are not an employee is rubbish.

 

I can't think of any huge benefit to the company by doing this, only that if something were to go wrong with and a claim was need they may try and tell you that as your self employed that your public liability will be claimed against, which is of course rubbish as your an employee!

[paulears]

Actually, he is correct - it is possible to have deductions made at source and NOT be an employee. One company I work for frequently does exactly this. I have an open ended contract to provide services, but am specifically designated as a 'non-payroll person' and am not allowed to consider myself as an employee. Another company I work for have people who work for maybe three months and will either get a 'key artiste contract' or a basic contract. This type is what all supporting cast and asm/dsm people get. They are not an employee of the company - but they do have Tax and National Insurance deductions made - with no exceptions. The people with the 'key contracts' are usually the ones who submit an invoice for a total fee 'for the job', and are VAT registered. The ttal invoice is then paid by weekly installments, totaling the full amount.

 

HMRC accept all these arranements as what the OP stated - non-employees, simply people providing services. This tax status is quite normal, and my accountant doesn't have any problem with it. The usual guidelines for assessing if you are self-employed are simply pre-arranged with HMRC after cosultation. In fact, if the organisation have got this tax arrangement in place, it's unlikley they'll be able to change it anyway. As far as the tax people are concerned, you are effectively two people - they can cope with the split personality, and collecting tax by way of PAYE is not linked to your status as an employee - this is what confuses people.

 

The letter you have been asked to sign is what many freelancers actually want - proof that the firm you are working for, and HMRC consider you self-employed. Of course, if you wish to be an employee, then it's not good - but that is their call really - and if you don't like it - don't work for them.

 

In most cases, the real issues come from people who wish to be considered self-employed, being annoyingly treated as employees - not the other way around. Benefits? not haing them is just one feature of self-employment. I've not paid a penny into a pension scheme for 4 years, apart from a few quids worth of NI.

[Bobbsy]

Paul has the right of it, with one slight exception.

 

HMRC, far from just accepting such arrangements, very often force companies into deducting PAYE and NI from casual labour. I know this was the case at the second-last place I worked--we used a lot of freelance technicians but, because they were rostered to cover specific hours etc., HMRC (then Inland Revenue) threatened that we would be fined if we didn't make deductions even if the people involved had the normal paperwork to demonstrate they were self-employed. The only way around this was for them to become registered companies and bill us with an invoice. This obviously created paperwork at their end since that company technically had to pay them a salary.

 

That said, beyond a certain amount of work (and I don't have the paperwork to give me the details) companies must give casuals some of the benefits that staff have. A good many companies I know are careful about this and stop using people one shift before they would get benefits. Harsh, I know, but I guess an inevitable consequence of the legislation.

 

Bob

[paulears]

It can even be a half-way house. Edexcel - the exam board who I work for fairly often have a simple policy. You don't work for us - you are an 'associate'. We pay you via a set of set fees for certain jobs. So you get a contract to "write material" or "provide services" - that kind of thing. They then deduct PAYE at 20% - NO exceptions for the self-employed. Annoying because many are genuine people who work for themselves. The don't however, deduct any NI - kind of a contradiction. No doubt as Bob says, just a method of protecting themselves. It's a pain for both people like me and people in full time work - because quite a few are in the 40% tax band, so this 'extra' income should be taxed at 40% not 20% - meaning additional complication with their tax returns. It's also tricky with my books. The best system my accountant came up with is to invoice for £100, then enter a tax deducted at source '-£20' line, making the total £80 correct. If you invoice for the actual amount paid, or the full amount both ways are kind of wrong. So I have to keep all the paperwork separate so he can adjust the totals at the end of the year. I won't go into the complication of VAT for these people - they are VAT exempt, so this means that despite having VAT invoices for hotels and food, I cannot claim this tax back - they too need keeping separate.

 

I notice that similar issues to ours are taking place in the video industry too - with freelance cameramen having exactly the same problems demonstrating their status. Like us, providing their own 'tools' - in their case, cameras and kit is a pretty good mechanism for demonstrating self-employed status, but what happens when they turn up to an OB where the kit is provided?

[aidso]

It also depends what way they are doing it. I know I used to do work for a charity and they asked me to fill out a P49 Registration of a New Employe form. If they have filled this then you are seen as an employe, But the only benefits you are entilted to are the legal ones I.e PPE. A lot off places do this to save on paperwork. Your best bet is to ring HMRC and registar as self employed and registar a trading name with them. Then send the company a letter on headed paper stating you are self employed and provide them with the registration number given to you by the HMRC. Then invoice them the full amount. The reason HMRC make compaines pay the PAYE for casuals is to stop all the cash in hand work that never gets declared. But if the companie can prove that you are self-employed and paying your own tax they do not need to pay your tax for you.

[paulears]

Oh dear.

 

If you have filled in the new employee form, you have shot yourself in the foot - if you are slf-employed you will never see this form, it has nothing to do with you - and is a form designed to let HMRC know you have been taken on as an employee - so if you are not one, don't fill it in.

 

You do not get a registration number from HMRC, they do not register anything - and having a business name is nothing to do with it. They are happy with Mr J Smith being self-employed, the same way they are happy with Mr J Smith, trading as Smiths. The unique tax reference number just identifies you - not the business name or anything like that. The UTRN means very little to an employer - just a bit like your NI number. Only HMRC can look up the info.

 

but if the companie can prove that you are self-employed and paying your own tax they do not need to pay your tax for you.

 

The company cannot prove you are self-employed, and why would they want to start contacting HMRC? The system is quite simple. If they are not satisfied you are a bona-fide contractor (in HMRC speak) then if it is later proven that you weren't, then they may have to pay the tax and non-deducted NI. Many firms don't even want the hassle, and just deduct it from everyone, and leave it to them to sort out later.

 

Last comment - please spend a bit of time on your spelling - we're grown ups, talking about tax!

 

the only benefits you are entilted to are the legal ones I.e PPE

Eh? So holiday pay, minimum pay, working hours, entitlement to maternity leave, etc etc you don't get? You do get legal benefits?? PPE is a legal benefit?

 

There are many topics on the ins and outs of self-employed status on the BR - some are an interesting read.

[pumphouse]

One thing that's being missed in the discussion is employERS NI payments. That's really why HMRC want to classify everyone as an employee (even for a day) so they can get the employERS NI contributions on top. They'll get your income tax and employEES NI anyway (if you're honest) regardless of if it is stopped at source or not. This is the main reason why they bought in the IR35 legislation (primarily to attack the IT industry that was full of 'contractors' working on long term contracts with single organisations and avoiding employers NI on these).

 

It is also possible in the UK to be employed (employee status) for tax purposes but not for employment law status and the associated benefits - possibly another reason for companies to want you to be properly self-employed.

 

It's all a nightmare. I have a full-time consultancy day-job, and am also registered self-employed for the theatre work I do for various clients. It makes for an interesting tax return and varied conversations with my accountant!

 

Jason

[andylights]

There is this very useful document...Self Employment In The Live Music & Events Industry ...click the self-employment guide. Prepared by Stagesafe for the PSA.

 

I haven't looked at all the .pdf's in their resource section, but it all looks very useful.

 

HTH

 

Andy