Tax & Accounting News

Self-employed or Employed?

28/04/2009

New regulations have been introduced to address issues thrown up by the Demibourne case of 2005, where HM Revenue and Customs ruled that a worker who had previously been classed as self-employed should in fact be considered an employee and required the employer to pay all the PAYE tax from his period of employment.

HMRC sought a full settlement of the tax, with no set-off for the payments already made by the individual – an approach upheld by the Commissioners.

The new rules introduced last year allow HMRC to make a direction to transfer part of the employer’s tax liability to the newly-classed employee in certain circumstances.

The rules will apply if the amount of the payment which should have been taxed as employment income has been included in a self-assessment made by the individual or if tax has been paid in relation to the income in question, either as a payment on account or as a subcontractor deduction.

HMRC will consider the transfer of the tax liability where it formally assesses the employer for all the tax concerned, or where the employer agrees that the individual concerned should be ‘on the books’. The new rules can also apply to previous tax years in certain circumstances.

Once any transfer has taken place, the employer will be relieved of the tax liability concerned, but will remain liable for any tax in excess of the amount covered by the transfer. The employer will also potentially be liable for penalties on the full amount of tax which should have been deducted, and interest will be charged on any balance of tax remaining payable.

This case highlights the importance of reviewing individuals’ working arrangements to ensure that those classed as ‘self-employed’ do fulfil that definition. For more information on this please contact us.

 

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