HMRC - Freelance v PAYE....am I missing something?

[StevieBee]

Part of the services we provide is doorstep engagement that involves the hiring, training and deployment of people on a fixed term contract. It's not a career by any means but a fair bit above min-wage and we do look after them. One of the ways we do this is to offer either a PAYE contract or Freelance. If the latter, they have to provide their UTR, an invoice and sign a form to state that they accept the responsibility for paying Tax and NI.

An example of how this works is that for a project last year, we had a freelance graphic designer. This chap was solo, self-employed and operated his business via sole-trader arrangement. Design work was sporadic and so he took the role with us to fill the financial void. He went for the freelance option, billing us via his design business.

Our visit from the HMRC today revealed that this is not allowed. We can only appoint a Doorstep Advisor on a Freelance basis if that person is a professional Freelance Doorstep Advisor, individuals that do not really exist.

An example they gave was this.

A man appointed on a freelance basis by a supermarket to collect trollies from the car park for three days a week cannot work for the other two days on a freelance basis for another supermarket stacking shelves. This is because that his not his trade; he is a freelance trolly collector. He can work for the other supermarket but only on a PAYE basis.

So, what am I missing here? Seems very odd to me.

[98elise]

I'm no expert, but I would assume that you can't do two unrelated trades through the same company. For example if you register for VAT FRS then you need to state what business you are in.

The supermarket one is a bad example as both are unskilled work clearly in the same trade. Its a bit like saying a freelance labourer can't dig holes, and move rubbish while being freelance.

Many trades have multiple skills or tasks as a part of their remit.

[Eric Mc]

A lot of it is as much to do with "tradition" as anything else. There are many jobs that HMRC just do not recognise can really be available as a "self employed" type activity. You will never see "self employed" supermarket checkout operators, or "self employed" bank tellers, for example.

The fact that you are "offering" somebody a position in your organisation that can either be undertaken through employment or self employment, is a strong indicator to HMRC that the activity that is being carried out is essentially a task that employees should be carrying out. Therefore if you engage somebody to do that task, even on a part time or casual basis, they must be a part time or casual employee. Getting them to "sign things" to declare themselves as being responsible for their own tax affairs or getting them to issue invoices holds very little water with HMRC when determining employment/self-employment status.

There is plenty of facility within the PAYE system for individuals to have multiple "employments" at the same time - so having another similar engagement elsewhere is not automatically going to render the person a "sole trader".

[croyde]

I'm a freelance TV cameraman and when I'm quiet I've driven vans and worked as a builder's labourer.

Stupidly I submitted everything as earnings.

Remind me not to bother next time.

Feckin' HMRC wkers couldn't even understand that as a freelance TV cameraman I worked for different TV companies.

One call went something like this:

HMRC "Hello, we understand that you are now working for the BBC"

ME "I was today but I will be working for MTV tomorrow"

HMRC "But you can't as we have you down as working for the BBC, we'll have to send you a P45"

ME "Well you better send me a few of them as the day after that I'll be working for CH4, then next week I'll be doing a couple of days for CH5 etc etc"

This was after having been freelance about 5 years, with accounts, tax number, LP10 letter.............

[TooLateForAName]

Their 'example' is crap.

However, it is not down to you and your 'employee' to decide if they are an employee or not.

You can't just decide that you are freelance - there is loads of coverage of IR35 on the web, suggest you do some reading.

[Eric Mc]

The specific rules of IR35 only applies to circumstances where the "freelancer" is operating through an "intermediary" of some sort, such as a limited company, a partnership, a limited liability partnership or something even more exotic (such as an offshore trust perhaps).

However, the tests to see if IR35 might apply are based on long established tests that should always be applied to individuals when deciding whether they should be treated as an employee or a third party "trader".

I think a lot of the problems and confusion about "self employment" status is the term "self employment" itself. I much prefer the term "sole trader" - mainly because it is a better description of what the status should actually be i.e. is the person running a business or trading in their own right?
Does the way they conduct themselves and the relationship they have with the people who pay them for the work they do the same relationship you would expect when a person is running a genuine business?

[StevieBee]

98elise said:

I'm no expert, but I would assume that you can't do two unrelated trades through the same company

I asked the same question and the answer is that no, you cannot. This thus renders the ability of a company to diversify unless they set up a new company to do so. When I put this to them, the recognised the absurdity of this and said they’d investigate further.

Eric Mc said:

I think a lot of the problems and confusion about "self employment" status is the term "self employment" itself. I much prefer the term "sole trader"

I think this is the nub. The people we’ve taken on on this basis have all been sole traders and take the work as it either fills gaps in their cashflows or time in otherwise empty diaries.

The graphic designer example is typical. We’ve also had cleaners, haidressers, etc.

So, I guess if the graphic designer was to register and promote himself as a communication consultant and advisor, we could provide both graphic design services and undertake doorstep advisory work under the same heading and thus not be an issue.

[Eric Mc]

Take him off the payroll completely and ONLY engage him as a third party trader. Even if you do that, HMRC might still argue that he is still doing his old "employed" job and therefore he should still be on the payroll for that work.

But at least you would be moving the slightly "schizo" arrangement you currently in place.

[sumo69]

This may be useful in deciding:

http://tools.hmrc.gov.uk/esi/screen/ESI/en-GB/summ...

David

[akirk]

StevieBee said:

98elise said:

I'm no expert, but I would assume that you can't do two unrelated trades through the same company

I asked the same question and the answer is that no, you cannot. This thus renders the ability of a company to diversify unless they set up a new company to do so. When I put this to them, the recognised the absurdity of this and said they’d investigate further.

Eric Mc said:

I think a lot of the problems and confusion about "self employment" status is the term "self employment" itself. I much prefer the term "sole trader"

I think this is the nub. The people we’ve taken on on this basis have all been sole traders and take the work as it either fills gaps in their cashflows or time in otherwise empty diaries.

The graphic designer example is typical. We’ve also had cleaners, haidressers, etc.

So, I guess if the graphic designer was to register and promote himself as a communication consultant and advisor, we could provide both graphic design services and undertake doorstep advisory work under the same heading and thus not be an issue.

exactly - give HMRC something generic as your company's role and then deliver any matching services you wish...

for example, offering building trade (bricky / plasterer / sparks) might seem vastly unrelated to graphic design and web - but lump it all under the banner of professional services to the building trade and they can be related... it is often in how you package it...

[Dr Jekyll]

akirk said:

exactly - give HMRC something generic as your company's role and then deliver any matching services you wish...

for example, offering building trade (bricky / plasterer / sparks) might seem vastly unrelated to graphic design and web - but lump it all under the banner of professional services to the building trade and they can be related... it is often in how you package it...

How did 'Cable and Wireless' get on? Not just unrelated but mutually exclusive.

[akirk]

Is there a law saying that one business can't offer two disparate services (e.g. rapid prototyping and engineering out of one part of the building and a fast food restaurant out of another?) As long as they comply with all necessary regulation / law for each section, I don't see an issue, the owner could be passionate about both...

HMRC wishing to classify a business to suit them is not the same as whether you are legally allowed to offer different services...

Is this about HMRC imposing their own systems / classifications, or about something being done illegally?

For example, with the classification on your company return - it is not unknown for the classifications list to change - I have had to change it on one of my companies in the past - my company didn't change, but suddenly it has changed according to the companies house register - how does that work? Why does a clerk in the civil service decide the range of options within which a company can operate?

unless I am missing a law which says that a company can only operate within one category set by HMRC then carry on as you wish...

[Eric Mc]

Of course they don't. However, there are tax rules which limit how losses can be offset one trade against another.