Tag Archives: Pay-as-you-earn tax

Getting real with PAYE

TaxOn 6th April 2013 the PAYE system changes to a ‘real time information system’ (RTI).  Under RTI  employers are required to update HMRC during the year about changes to staff earnings – so that people on earnings-related credits are not paid out the wrong amount.  This will include benefits and bonuses.

Here are the key points:

  1. Get  employees’ NI numbers on their first day of work with you (if not earlier).
  2. If you use a payroll bureau/agency, your payroll cut off date may be earlier in the month as they will need to collect and process more information. Make sure you note the new  deadlines they send you.   Give yourself time to collect and report on the new information.
  3. If you run your own payroll, make sure your software is up to date with the latest versions – check with your software provider for when “real time compliant” upgrades are available.
  4. If you are still on a manual payroll system, take advice on how to comply. It may be time to get a payroll bureau or some software.

New starters

  1. You’ll need the employee’s National Insurance number. If the paperwork supplied by the employee (P45 etc) does not give you this information, you can get HMRC to do a trace for the number – the form to do that is available from this HMRC’s website
  2. You have to check eligibility to work in the UK.  There is a help page setting out which documents you need to see (and copy) – available online.   If you need to use the new employee’s passport for this check, you will also need to give the passport number to HMRC.
  3. You will need employees to sign a declaration stating:
  • Whether this is their first job during the tax year
  • That this their only job OR
  • Whether they have another job or pension

Advantages

If RTI works employers and employees will be paying the right tax under PAYE and not building up liabilities for underpaid tax that need to be settled the following year (or paying too much tax and having to claim a rebate).

Top tips

If an employee is wrongly classified as self-employed for PAYE purposes, liabilities will be accruing and will need paying later.   You need to be  confident that self-employment is appropriate.  Just calling someone self-employed isn’t  enough – you have to meet the right tests based on the real way you work with them.

HMRC are on to how much tax this can save employers/employees and it is only a question of time before they start auditing some of the more dubious arrangements.

The tax goal posts have moved.    What seemed like a good idea five years ago can be inappropriate today – review your self-employed and freelance arrangements.

From the employer’s point of view, a newly appointed employee now has to serve two years before they qualify for unfair dismissal rights, so employment is an increasingly more flexible option.

For tax advice, please speak to your accountant.  More technical information is available from HMRC.

For a free talk on how employment law includes freelance workers check our KoffeeKlatch website.

If you have out of date arrangements or contracts, now is the time to review them and get it straight – talk to us.

Irenicon Ltd, Airport House, Purley Way, Croydon CR0 0XZ
Tel: 08452 303050 Fax: 08452 303060
Email: advice@irenicon.co.uk Website: http://www.irenicon.co.uk

4 Comments

Filed under contract, Freelance Workers, pay

Getting to grips with ‘the help’

The natural growth pattern for a start up business is to have one or two unpaid owners who start it, then they get paid (a bit), and then other people start helping in the business.

Family members help out from time to time, some casual workers, some freelancers, even interns and apprentices. Some businesses never get out of the ‘freelance’ mode and take on employed staff.  Some employ people and carry on with a mix.  Very few end up with employed staff only as a business model.

Entrepreneurs cite fear of employment law as one of their key concerns – yet few seem to realise some simple facts:

  1. Calling someone freelance or self employed does not mean they are (we might have thought of that one ourselves if it really worked!)
  2. Self employment does not mean no tax has to be deducted under IR35
  3. Employment tribunals can decide your people are really employed (and trigger claims from the revenue for back tax)
  4. Genuine freelance workers have a full range of discrimination and other employment rights (the main thing they don’t have is unfair dismissal rights)

It can be tempting to take on people as freelance workers and not have to worry about PAYE and tax at the end of the month, but it can mean that you are storing up trouble for the future.   Sometimes it can be better to pay the tax as you go and know you don’t owe the revenue anything later.

New employees have two years before they qualify for unfair dismissal rights, and for some people it can be less worry to take on staff if the work needs to be done regularly or on an ongoing basis.  You really should talk to your accountants about this and tell them honestly how you are working.

Even if freelance workers are the right model for you, you need a proper agreement that not only sets out the relationship so HMRC can see it is not an employment relationship but also deals with:

  1. Who owns copyright – the default is that they will if they are not an employee
  2. Confidentiality and data protection
  3. What happens about confidential information when the contract ends
  4. How they will deal with sending suitably qualified substitutes when they are not available……because if they can’t that may be one indicator that they are not self employed
  5. What equipment they are going to provide
    And there’s more……

There are lots of things the law gives you automatically if you are the boss of an employee that you are going to have to contract for if you are using freelance workers. We come across people who don’t have copyright in their own web sites, who don’t have access to social media followers they paid someone to find and worse.

Ultimately you are in business to get particular things done at a profit. Setting out proper arrangements to manage freelance workers (and staff) are part of the building blocks of that success. Join us for a free teleseminar to discuss managing freelance workers – register via this link.

Annabel Kaye is Managing Director of Irenicon Ltd, a specialist employment law consultancy.

Tel: 08452 303050 Fax: 08452 303060
You can follow Annabel on Twitter
www.irenicon.co.uk
www.koffeeklatch.co.uk
www.balancingthebump.com

1 Comment

Filed under employment law, Freelance Workers

Guest blog – Does HMRC understand IR35? Do you? Does anyone?

This is the transcript of an interview between Robert Bradley of Bradley & Associates and Annabel Kaye of Irenicon. Robert’s firm is accredited by the Professional Contractors Group, and he regularly speaks on the subject of Tax Status and IR35.

Annabel:  One of things we find when working with entrepreneurs is that they think if someone is self employed they should pay their own tax and national insurance and that should be an end of it. The situation is more complicated than that since calling everyone self employed doesn’t mean they are and even if they are HMRC can make you deduct tax or charge you if you haven’t. The whole tax thing is about as clear as mud to most people. HMRC have recently updated their tests and guidance and I have asked Robert Bradley to try to help me understand who has to deduct tax and when.

Robert:  HMRC has struggled with enforcing clear rules around tax status, particularly in the construction industry and in the case of the one man consultant contractor who is potentially subject to the Intermediaries legislation, more commonly known as IR35. The latest new ‘Business Entity’ tests which have been introduced under IR35are an attempt to help businesses understand when they should be deducting tax from freelancers and when they shouldn’t. Whether this will really help in this process remains to be seen. To date they have not been well received.

Annabel:  I have been through the tests on the website with several clients to see what answers they get. While some are getting very clear indicators that they should be deducting tax under IR35, a lot are getting results in the ‘grey’ zone. If someone uses the tests and puts in honest data, are they in the clear if the tests say – don’t deduct tax?

Robert:  Well, as a specialist in this area, I think they have missed an opportunity to use existing cases and make them part of the online tests so that people can be fairly certain where they are if their situation matches one of the key cases. There is also no real understanding of how small businesses and start ups really work, so a lot of genuine one person businesses may come out of the tests as ‘not a business’ because they don’t need indemnity insurance, can’t create efficiencies internally, and don’t need to advertise or operate from premises. In the world of social media you may not have any paid advertising receipts and yet have a very successful business. Lots of real businesses are start up and run from home and the tests put too much emphasis on where people work, which in the modern online and virtual world is increasingly irrelevant.

Annabel:  We have seen a few new clients who have come to us when HMRC are saying these people are really employees. The problem is that at that point there is often a disputed liability for back tax – either under PAYE or IR35. Do you see these new tests as helping people avoid that problem?

Robert:  While I do see that we need to guard against abuses like having a job, leaving it, forming a personal services company and going back into that same job with a different tax structure, I think there are real problems with some of the other tests. For example how can someone provide substitutes if their skills are very specific?

Annabel:  We have looked at that element. The reality is with the right framework agreement that enables a substitute to be used (with the client’s consent) it is possible to get a substitute to do some of the work. It does not have to be all of it. For example, a high level IT specialist may still have some ‘hack’ work to do within a contract and can organise someone suitably qualified, with the client’s consent to do that. Sometimes that can be really good for the business and can lead to a serious look at whether the boss ought to be doing the grunt work – something that is often the turning point from ‘solopreneur’ to real entrepreneur with a team of associates and/or employees around them.

Robert:  I don’t think the new guidance will help many contractors have peace of mind about IR35.

HMRC are currently targeting IT contractors, so perhaps when a few cases have come to court and been settled we will have a clearer picture of how the new rules will determine the IR35 status of one man contractor companies. In the meantime, I will be updating my social media as updates are published.

Annabel:  We will continue to run our KoffeeKlatch seminars on managing freelance workers and to urge people to use a proper agreement and take proper advice on the tax status.

Thank you Robert, it’s clearly a very challenging area of taxation and I appreciate you taking time out to share your thoughts with us.

You can follow Robert Bradley on Twitter
He can be contacted by telephone on 01299 879140
Email : robert@bradleyandassocates.co.uk
Web : www.bradleyandassociates.co.uk

Annabel Kaye is Managing Director of Irenicon Ltd, a specialist employment law consultancy.
Tel: 08452 303050 Fax: 08452 303060
You can follow Annabel on Twitter
www.irenicon.co.uk
www.koffeeklatch.co.uk
www.balancingthebump.com

3 Comments

Filed under employment law, Freelance Workers