Employed but not having tax/NI deducted

Monsoon

A person is employed. The badges of trade and employment status tests clearly show they are an employee, not self employed. Their employer says they are self employed, and pays her gross.

I have advised that they don't register as self employed, as they aren't. It would be wrong.

However, from this point on, I am stuck.

They do have income that they know is not being taxed. Thus, I believe this means they are obliged to register for self assessment.

If so, I would expect them to complete the employment pages, and show no tax deducted, and make a note in the white space. There is no employer reference number of course.

What about NI? They are being paid over the threshold and should have NI deducted. As the onus is on the employer, presumably they would have to be credited with NI, even though the employer was operating incorrectly and didn't pay it over? Not automatically of course, but after some negotiation.

It's a messy one because of course, the employer doesn't want to be an employer and they want to keep their job. This employer has done this for years.

Chances are, HMRC will never pick up on this, even if they are tipped off.

Any thoughts gratefully received. The employee does not want to evade tax. It really hacks me off that people act like this (the employer, not the employee).

stefanboro

At the practise I used to work at we had many people like this.

The attitude was something like

"It's not our responsibility. They have come wanting us to do a tax return and that's what we will do. We can advise but ultimately it is their own responsibilty"

The advice was generally centred around how to meet the criteria of being self-employed, even know we all know the reality.

Tricky one... but unless the client instructs you otherwise then I think it's down to the AAT ethics code.

stefanboro

And of course your own ethics!

Rozzi Rainbow

I've found this on the HMRC website:

"However, if you work under a contract for services (self-employed), you will be responsible for registering as self-employed and for completing a Self Assessment."

If the employer says she is S/E (even if she isn't!) it appears this would apply to her. I think there is space on the CWF1 to declare if you are doing all your work for one employer and may therefore be employed, but I can understand you not wanting to register her as S/E.

We had a similar situation where we just registed our client as S/E and declared all his income and tax and NI due via self assessment. But when the onus is on the employer to get it right, and really the payments to your client are net payments after tax and NI has supposedly been deducted, I can see why she shouldn't have to pay anything and HMRC should chase the employer!

Found this number on the HMRC website, "Help and advice on employment status issues for tax and NICs is available by phoning 0845 3000 627." but I don't know how far you want to go with "dropping the employer in it".

I know this isn't a lot of help, just my thoughts on things. Good luck!

Monsoon

Thanks both.

Don't get me wrong; I have clients who are "self employed" but not, having come to me like that, and where it's sufficiently grey enough of an area to feel comfortable with it.

However, this one is very clearly employment and I object strongly to a young person being paid not much more than NWM having to incur the costs of an accountant for self employed self assessment.

I do think that completing a tax return is correct - as the employee knows they are not paying tax and thus can't play the "but I thought I was being paid net" card. I also think the employment pages are the correct ones to use. Or, the "other income" on the main return and disclose in the white space, as they have neither official employment nor self employment income.

Actually, I am now thinking main return, other income, white space. "I have a job, I am not self employed but I do not get a P60 or have tax deducted."

Anyone agree/disagree?

payrollpro

Monsoon,

I totally agree with you, the employer is, as you say, acting unlawfully and is immoral by pretending this is a service contract. They are also avoiding the secondary NIC charge and sidestepping their responsibility to operate PAYE.

I hate to say it but I think the profession is wrong to take the view that it is not our problem, it is and we should act in accordance with the law. Is it not a MLR offence to unlawfully manipulate the process in this way?

I go with your suggestion and would compile the SA return with the figures as though it is employment and use the white space to explain and name the payer as not having issued P60 or carried out any y/e process.

Perhaps also point out the other rights this person has got, right to time off and right to notice and make sure he or she has access to employment rights advice which can help make the necessary complaints when the work terminates, as it surely will!

Payrollpro

Dcollins

I'd treat the client as self-employed, and enter the income as SE. Make sure they pay class 2 NIC, so no gaps in contributions, which could end up being the most important thing to the worker

payrollpro wrote: »

Monsoon,

Perhaps also point out the other rights this person has got, right to time off and right to notice and make sure he or she has access to employment rights advice which can help make the necessary complaints when the work terminates, as it surely will!

Payrollpro

That crossed my mind, I hate this kind of thing too. The employer is shirking responsibility for much more than PAYE and NIC. But HMRC clearly states it is the employer's responsibility to establish the employment status of workers. It is also HMRC's job to ensure that employers are operating appropriate schemes.

Has anyone tried this? http://www.hmrc.gov.uk/tax-evasion/

Monsoon

Thanks PP.

I agree, I don't think it is right to shoehorn them into self employment without looking at other options.

I think I am going to give the client (who is actually not a client but a relative of one, and who will likely do their own tax return) a choice:

Register with CWF1 and get class 2 NI stamp and be self employed, but complete the box that says "I work for one person."

or

Register with form SA1 and state they receive untaxed employment income and see what happens.

As they are an employee, can they insist on getting Class 1 NI credits for the pay if they were so minded (knowing that this would trigger a status enquiry for the employer so it probably wont happen, but in theory)?

payrollpro

Monsoon,

The sharp answer is yes. Your description of the person strongly suggests that the true nature of the relationship is one of employment and that means class 1 NIC, primary and secondary, are due. If the employer fails to operate PAYE then they become liable for both primary and secondary contributions, whether they like it or not.

If it was me I would do as you suggest, declare untaxed and un nic'd employment income but I'd also not register as a sole trader, don't pay class 2 or 4 and then after a few years get your NI record made up at the employers expense, simples.

I confess I have done it before for someone who was not assessed for income tax or NIC for years and when HMRC caught up with him I made it clear that he had declared the income but as an employee he had no requirement to pay tax or NIC as his employer was doing it.

HMRC had no choice but to chase the employer for all the PAYE.

Payrollpro

babsa

I inputted someones date of birth wrong so it took them over retirement ageand didn't pay any NI, about 18 months later HMRC wanted the back pay of NI and charged interest on the outstanding amount. (I ended up paying this personally, the employee didn't work for the client any more. That is a different story.) HMRC will want paying. It's like and CIS scheme if you sub contractor for 52 weeks to the same person HMRC are getting wise to this and are wanting paying the employers NI.

Dcollins

payrollpro wrote: »

Monsoon,


If it was me I would do as you suggest, declare untaxed and un nic'd employment income but I'd also not register as a sole trader, don't pay class 2 or 4 and then after a few years get your NI record made up at the employers expense, simples.

I confess I have done it before for someone who was not assessed for income tax or NIC for years and when HMRC caught up with him I made it clear that he had declared the income but as an employee he had no requirement to pay tax or NIC as his employer was doing it.

HMRC had no choice but to chase the employer for all the PAYE.

Payrollpro

Just out of curiosity, does anyone know what would happen if the employer became bankrupt, disappeared or was unable to pay for any other reason? If HMRC couldn't get payment from the employer, would they then chase the worker? Babsa's post suggests they would.

The worker would also be out of a job, so he/she could have difficulty claiming benefits, because of the gap in NI.

PAMDILL

I have known people personally who have had NI deducted and shown on their P60 etc. as deducted then employer has not paid it, gone bankrupt and they have been told to either pay it themselves or lose out on benefits.

One even had a gap where they had been signing on, not receiving JSA but supposedly getting their NI paid and ending up having to pay NIC to get their pension as the DWP had lost the records of their payments.

Monsoon

The liability to pay over deducted tax and Ni lies firmly with the employer and to chase the employee for the employer's failure to pay is utterly incorrect and if HMRC are asking people to pay on their employers behalf (out of their NET PAY!!) surely this is tantamount to theft/ extortion?!

PAMDILL wrote: »

the DWP had lost the records of their payments.

I've lost 2 years of NI contributions because this happened to me. Sadly I'm far too busy to dig out paperwork from nearly a decade ago to try and fight it (DWP have destroyed their records as they are so old).

payrollpro

Monsoon is right, once again.

If the liability falls to an employer then HMRC have no right to chase the employee for the money. The state is required to ensure the persons tax and NIC records show the position had it been done correctly and the cost of that falls to the person identified in law as employer. HMRC will only do this if you make them! If the employer goes bust then tough, they still can't pursue the employee because technically they have already paid it.

Monsoon, I know it sucks that some of your NI records are missing but I'd be wary of the response that because they are so old they've lost them, that is irrelevant. One thing though, now you only need 30 years for a full pension you might be able to lose a few here and there along the way without worrying about it and being 10 years ago it will have no effect on your current benefit entitlement generally!

Payrollpro

Monsoon

Thanks PP. Yes i know it's no excuse. The 30 year thing is helpful and partly why I've not attended to it yet, but if I strike it rich and or take time off for being a mum one day, those extra 2 years might count! If I can find the letter i will try and deal with it, but there are too many other more important and urgent things to deal with, you know how it gets!

zara5034

Hi Monsoon

Just wanted to point out that if you do take time out to become a mum, then as long as the child benefit is registered to yourself, then you will receive the NI stamp until the youngest child reaches 11.

Monsoon

zara5034 wrote: »

Hi Monsoon

Just wanted to point out that if you do take time out to become a mum, then as long as the child benefit is registered to yourself, then you will receive the NI stamp until the youngest child reaches 11.

Ooooh, thanks Zara, I didn't know that! Nifty