Employees on 1 year contract

jackieshep

Hi there,

Please can anybody give me some advice with regards to PAYE and NI

A local large company employs clerical staff on a one year contract basis which is renewed each year (which is not guaranteed) and as I understand it these means that the company is not liable for PAYE and NI? The staff have to process these deductions themselves by way of a yearly tax return.

Would this be correct, or am I mistaken?

Many thanks

Monsoon

Sounds a bit suss to me!

If they employ staff, they have to pay them as an employer, which involves applying the PAYE/NI rules.

If they are genuinely self employed then yes, the workers pay tax and NI under self assessment. I never heard of self employed permanenet clerical staff though!

Employment status is a matter of fact not of choice. The Employer will be the one to be chased for tax if they get it wrong, not the worker.

Paul C

I think there are some set rules on who can be classed as self employed? I don't know them by rote but I think one check is something around -

if a person is obliged to turn up for work on set days, and work set hours then they would be counted as employed. Sounds very likely for clerical staff......

a plumber for instance probabably says "I'll be round when I can" ;-)

MOHMEDSALIM PATEL

however contract terms is

As far as my knowledge concern no matter what contract terms is. if employee use employers tools, office,and other resources he/ she is an employee therefore employer is liable to collect nics and paye on behalf of hmrc from wages.
we had part time casual employees and have collected as their status.

you need to contact hmrc to ensure he /she employee or self employee and should act from there.

jackieshep

Thanks everybody

blobbyh

Sounds like a possible IR35 breach to me unless each worker is contracting through a limited company arrangement (unlikely for clerical workers) and even then, it's not always safe:

IR35: http://commonwealthcontractors.com/Right_to_Control.html

HMRC will ask the employing company to complete a section 16 report after the close of each payroll year listing payments made to each contractor (which I assume they will subsequently cross reference with records received from each contractor to check for tax evaders).

Monsoon

Slightly nitpicking (sorry Robert), IR35 only applies to Ltd Cos.

If IR35 applies, it is the contractor's Ltd Co who is liable for tax (which is why some engagers insist their contractors use a Ltd Co).

If a worker is not trading through a ltd co, then the onus falls on the employer, if an employer-employee relationship exists, to deduct tax and NI correctly. The breach here is one of employment status.

This is a start
http://www.hmrc.gov.uk/calcs/esi.htm

Remember this is from HMRC, so they will be slanted towards suggesting employment, as they make more tax money that way!

The general principles in defining whether someone is employed (or that their company falls under IR35) are:

Engager has right of control in terms of how to do the work, when the work is done
Engager supplies own equipment
Engager pays holiday pay
Worker is required to personally do the work
Paying an hourly rate

Indications that a worker is genuinely self employed (or their company falls outside IR35)

Financial risk (if they make mistakes they have to put right at own cost)
No holiday pay
Right of substitution (if I'm not available, I can send John to do the work instead, John being suitably qualified and experienced to do the work)
Can choose own hours

The above are a very basic list of indicators and each working relationship needs looking at individually to determine employment status.

blobbyh

Monsoon wrote: »

Slightly nitpicking (sorry Robert), IR35 only applies to Ltd Cos

I know this but the OP might not and thus be confused about the non-taxable situation! Thought I qualified this in my post by saying that the workers might be contracting under their own limited company arrangements that the OP might not be aware of and thus the reason why the client company is escaping their tax liabilites?! The breach reference was that if they are working under limited company arrangements then the control parts of IR35 should be considered.

Having read it back, maybe I didn't write it too well did I?

Monsoon

blobbyh wrote: »

I know this but the OP might not and thus be confused about the non-taxable situation! Thought I qualified this in my post by saying that the workers might be contracting under their own limited company arrangements that the OP might not be aware of and thus the reason why the client company is escaping their tax liabilites?! The breach reference was that if they are working under limited company arrangements then the control parts of IR35 should be considered.

Having read it back, maybe I didn't write it too well did I?

I'm lost

We both know what we mean :-)

payrollpro

Jackie,

I think you may have worked out from all these comments that your clients workers are "employee" whether they like it or not. You need to look up the employment rules on fixed term workers and, no, I have never heard of any rule which states that if a person works for less than 12 months the hirer doesn't have to worry about PAYE. The reference to look for is the The Fixed Term Employees (Prevention of less favourable treatment) Regulations 2002. After four fixed term contracts a worker can treat themselves as a permanent employee automatically.

Your client also needs to look up the Demiborne case, a classic renewable set of contracts where the worker submitted SA returns and paid the tax, etc. HMRC wanted the tax/NIC and penalties from the employer and claimed they were not obliged to refund any SA payments made directly by the worker, and the tribunal agreed with them!!

Apparently it is up to the worker to claim a refund, assuming they even know their old employer has been done for non compliance.

People are right, IR35 is irrelevant but the principles of worker status within this are very relevant indeed.

Payrollpro