Employee and subbie at the same time


Does anyone have any experience of the situation where a company has one person on their books and pays them on a PAYE casual contract for some work and as a sub contractor through CIS for the rest?

The only thing that may be a problem is NI since HMRC may deem all income to be PAYE, again your thoughts on this please.

Some of the work is on hours and comes out as employment on the HMR&C employment indicator and some the work that is on a price comes out as self employed.

Its a pain to control but actually does reduce NI, but thats the main problem



  • payrollpro
    payrollpro Registered, FMAAT Posts: 427 Dedicated contributor ? ? ?
    It is possible to be an employee and sub contractor at the same time but it is highly unusual and probably not recommended.

    I was successful in getting HMRC to accept this for a local authority in the west country but only because I could prove that the employee, working in finance, got the contract to do some design work through a local advert and that the client, the council, had no idea he was already an employee.

    In this case HMRC accepted that he had a genuinely separate business, was registered and insured and advertised completely independently. The organisation is so big the hirer could have had no idea of the connection and were, as far as they were concerned, dealing with a company.

    The same cannot be said here because the company is small and the decision to hire his business had to be made with the full knowledge of his existing employment, albeit casual, with the company. HMRC would probably argue that his business was chosen because they already knew about him and his work.

    I would also ask you to consider the very public announcement of a further purge on self employment within the construction industry, rather unhelpfully entitled false self employment, which could affect this arrangement.

    As I said at the start, it is possible and legal but it needs careful thought. Some questions - what is the difference between the type of work he does as a casual and the services his company is providing? Is there a separate contract for each one - i.e. a clear and unambiguous employment contract for one set of work and a different purchasing arrangement with his company?

    Fundamentally, I can't see it working somehow.

    Payroll pro
  • Poodle
    Poodle Registered Posts: 711
    Hi P

    Thank you for your response, I had a read through the proposal last night, very frightening.

    The employer/contractor cannot guarantee regular work for the employee/subbie and he is now offering him an hourly rate for any work that he is able to offer, and this is being paid through CIS. But I suspect that it should go through PAYE.

    The contractual agreement between them has no mutuality of obligation but all other indicators for the hourly work lead to employment. The employer cannot guarantee work in the future and does not have the resources to take the guy on as a permanent employee.

    Do you have any experience of 'Zero Hours contracts' and do you think that such a contract could help in this situation?
  • payrollpro
    payrollpro Registered, FMAAT Posts: 427 Dedicated contributor ? ? ?

    Yes I have done a lot of zero hours contracts but again only in my former life in local government. We did it for leisure staff and the sports centres could not exist without them but again, would it work in these circumstances?

    Previously I thought it would be best if he dropped the employment and just concentrated on the CIS work but then your caught by the continuing worker rule, an employee leaves on Friday and starts as a contractor on Monday, and HMRC are quick to disallow that. The other problem is why should he give up the casual PAYE work in favour of a total, no guarantee contract?

    I feel you need to convince your client to go PAYE for the lot and be done with it. It sounds unlikley that you will get a gross payment certificate so you still have to go through the labour/materials split to work out the deduction.

    One final issue is the intended review of construction industry sub contracting, as I mentioned, where the tests will include some more stringent investigation of materials supply and equipment use.

    That's all I can say, but presumably if your client insists you don't have a lot of choice really, he's not doing anything illegal (or even reportable) just unwise.

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