I've just had a call from someone who was made redundant from their little part time job and has then gone back on a self employed basis earning less than £100 a week. Can they do this?
Sounds like disguised employment where the employer is attempting to avoid their obligations (Pensions / sick pay / Maternity pay / Paternity leave / holiday pay / redundancy payments / training costs / minimum wage / staff welfare costs / etc. etc.).
This is not at all unusual and I'm seeing it a lot where staff are being moved off payroll on the back of legislative changes that small companies simply cannot afford (a case of bend (sometimes break) the rules or fold).
Just because its now common place does not mean that it's right and the employer could get into trouble over this arrangement.
If it was a short term contract to help with the transition to a new staff member then that would be OK but as an ongoing arrangement it is not acceptable.
A recent tax case has shown that regardless of whether the self employed person pays their tax under self assessment HMRC may still chase the employer (see Demibourne Ltd vs. HM Revenue & Customs) and refuse to offset tax paid by the disguised employee against the tax liability of the employer. (yes, that one was through a limited company but it was indicated that the case would be equally applicable to other legal forms).
The amount that your client is paid is immaterial to the offence. Such indicates a desire to avoid employer obligations rather than tax and NI liability.
Now there we have an interesting point as with a larger salary the employer would be evading their tax liability and your client is facilitating such. Tax evasion (even though not directly perpetrated by your client (they are facilitating it for their employer)) comes under the remit of being a money laundering offence.
Because no tax is being lost in this instance would that still put it under a money laundering offence?
Might be worth giving the legal department of your professional body a call with that question to get a legal professionals take on that.
For now, talk to the potential client and find out what the arrangement is. Are they on a short fixed term contract to facilitate a handover or is this an ongoing arrangement with a single employer?
Interested to hear other peoples views on this topical issue.
kind regards,
Shaun.
P.S. From the employee / Self employed persons perspective their main issue is the more lenient tax treatment of the self employed may be misplaced so may find that what is deemed legitimate expenditure (such as your fee's) is not legitimate at all and may end up with a nasty tax liability (plus interest, penalties and surcharges).
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Thank you for confirming this shaun, I had a bad feeling about it when they called me. What about MIP's who go self employed with an ex employer to do the bookkeeping but also has other clients? I am sure I read something on this forum about that , where do they stand?
they're fine as its not disguised employment but rather a proper client rerlationship.
The exception to that would be someone who goes self employed and works predominantly all of there time for their old employer in ostensibly the same role as before and even then there may be question marks over it being deemed employment for example, if all of one's clients came from a single source but you do not use the employers equipment, software, premises, etc. But rather simply outsource work from them then that to my mind is self employment rather than employment.
Everyone just needs to be sensible, judge each case on it's own merrits and consider that you are the HMRC inspector looking at the arrangement how would you view it?
For the bulk of time though I think that you will find that most MIPs are genuinely self employed even if working with their old employer with some clients.
HTH,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Isnt there an issue also that if they were made redundant then by going through this process the job role itself is no longer available. So Im assuming the role they are now doing is slightly different (otherwise they may have a potential claim for wrongly redundancy/dismissal??)
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Isnt there an issue also that if they were made redundant then by going through this process the job role itself is no longer available.
That's a very good point Jo. And if the role becomes available again it has to be offered back to the redundant person first.
In this case the only advantage I can see is saving on holiday pay. If I were the redundant person I would be wanting an increase in rate to cover that. (Notwithstanding the issues Shaun has pointed out)
Come on fella's, I think that we've been around the block long enough to know how this works.
Make the accounts assistant redundant on the Friday, hire a bookkeeper on the Monday.
another one is lose the developer on a Friday hire an Analyst on a Monday (must have coding skills).
You change the job description but they're fundamentally the same jobs.
Do people never wonder why some contract job ads have such outlandishly specific details of must haves that could only ever be met by people who have worked for the organisation?
Serious size businesses get rid of whole departments by outsourcing to companies that mop up their staff on contract for services arrangement.
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Come on fella's, I think that we've been around the block long enough to know how this works.
Make the accounts assistant redundant on the Friday, hire a bookkeeper on the Monday.
another one is lose the developer on a Friday hire an Analyst on a Monday (must have coding skills).
You change the job description but they're fundamentally the same jobs.
Do people never wonder why some contract job ads have such outlandishly specific details of must haves that could only ever be met by people who have worked for the organisation?
Serious size businesses get rid of whole departments by outsourcing to companies that mop up their staff on contract for services arrangement.
Shaun.
I thought I should mention it, cos not everyone in here has the experiences of some of us older ex corporate cynical bods.
But yes I've seen 100+ people go overnight in such circumstances! oh you can't work here for again for at least 6months, but start back after the weekend on contracts.
-- Edited by Cheshire on Thursday 26th of February 2015 08:38:45 AM
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Yep, Same here Jo. No surprise I feel that we both come from a background in banking!
Happened to me once but seen it happen several times in companies that I've been working with.
In Scotland I saw it with the same management team going from company to company like a plague of locusts doing the same thing to each place that they hit.
Even in TUPE agreements you find that it's used as an excuse to get people off one pension scheme and onto a different one as the original will be "closed to non employee's". Lots of defined benefit black holes have been neatly eradicated that way.
Its a very good point you raised Jo but unfortunately one of those bits of regulation that couldn't be easier to traverse around if it came with a free roadmap and flashlight.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
