HMRC, Employers and the Self Employed

HMRC, Employers and the Self Employed

In our previous quarterly Employment Bulletins we firstly reported upon the situation whereby employers were being pursued by HMRC for a full payment of tax under the PAYE system notwithstanding that the worker concerned had accounted to the Revenue on a self-employed basis. We then reported in a subsequent Bulletin that regulations had been brought in from April 2008 to deal with this iniquity.

Almost a year on we are receiving reports that HMRC remain keen in pursuing employers in this situation and notwithstanding the new regulations employers can still find themselves liable not only for tax but also penalties.

Where HMRC took the view that a worker was now to be classed as an employee the regulations allowed HMRC to direct that part of the employer’s tax liability which arose from the reclassification could be transferred to the worker who was now regarded as an employee. This direction could be made in certain circumstances.

The circumstances are that the “lost” tax which should have been recovered through PAYE from the employer has in fact been included in a self assessment made by the individual and tax has been paid by that individual. This could be by way of a payment on account or a sub-contracted deduction.

If such a direction is made then the employer will not face a tax liability in respect of the tax liability transferred but if there is an excess by way of a difference between the amount due from the employer and the amount paid by the employee the employer will remain liable for that excess.

HMRC can :

• Go back several years
• Charge interest
• Charge penalties

All of these may fall to be paid by the employer.

The moral of the story is that those who work for an employer on a regular basis but claim self-employed status should be reviewed and if in reality they are employed (or more importantly likely to be regarded as employed by HMRC) then arrangements should be made to put them on the books.

If you would like help in making this assessment or putting into effect a transfer from self-employed to employed status please contact Patrick Nelson, associate on 01785 211411.

1 April 2009


The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances. (50587)