Re: FN-FORUM: Client making me employee without notice

date posted 24th November 2005 17:44

Hi Paul

This can seem confusing, but it isn't really. Many self employed
people do salaried jobs too.

I'm not sure if you have told us whether they have deducted Tax an NI
from the money they sent you. If they are still sending you the same
money then you are at a significant advantage as this is money that
they will have to pay Tax and NI on, much as they would if they were
caught under IR35.

Insurance : Your indemnity insurance does not apply as an employee -
your incompetence as an employee is covered by their insurance
requirements not yours. :o)

Contract : You don't need to sign a contract of employment to be
employed. A verbal offer and acceptance is considered to be
contractual on both sides and is reinforced by the fact that you have
done work for them and been paid for it - it's actually very common.
You do also have legal entitlements to paid leave and sickness (at
least SSP) under employment law unless a contract has been signed
waiving these rights.

Tax : VAT does not apply. If you have invoiced them an amount
(inclusive of VAT) and they then pay you that amount as salary, it is
ALL yours personally, with Tax and NI paid and nothing to pay to HMCE
vat office - the numbers are effectively just a coincidence. Your
invoice needs voiding on your accounts though as it was never paid.
Indeed as far as your business acccounts go, any salary you receive
from another party is irrelevant. You should be submitting timesheets
with an hourly rate instead.

Tax Return : You will need to add any money from emplyment (together
with what Tax and NI has been paid by your various employers) to your
tax return. You won't pay extra tax or NI on any of it directly, but
it would raise the tax due on your self employment as it takes up your
tax allowance and moves the effective threshholds for your income tax
rates. You would still keep more money this way though, unless they
are deducting Tax and NI from the amount you charge them.

Opinion: It sounds like a clerical error, but it could be university
policy. After all they are liable for Tax and NI if the subcontract to
you and get caught by IR35, so they may have a line that they have
drawn, past which a subcontractor becomes an employee, to reduce the
risk of subsequent fines and charges from the revenue people. I would
get a clear statement from the university as soon as possible, stating
that they are either mistaken (in which case get that payment reversed
and repaid properly - it can all be done on paper), or stating that
they have a policy to pay your fees as salary after a certain point,
and that they will pay all Tax and NI due, and that your fee will be
paid in full "Net of PAYE" (in which case make sure you get proper
paperwork - payslips, P60, contract, etc.).

In summary: If they want to pay you by salary, as a self-employed peep
this is an advantage provided they don't deduct Tax and NI from what
you bill them (though you probably ought to stop adding 17.5%!). If
they want to deduct Tax and NI then refuse - you will lose money! If
they do say they want to pay you as an employee then get an accountant
involved to confirm all of the above and get the right paperwork
sorted out.

Hope this helps.

Adam