Paying the right tax - How to avoid the pitfalls of bogus self-employment practices
Recently over 1,000 lorry drivers have been left owing large sums of tax after finding that the accounting company they used disappeared with the money. In addition, Unite have launched legal action against two agencies, which the union claims are using “sham and bogus” self-employment practices. There is therefore growing concern amongst a number of workers about how at risk they are regarding HMRC fines or the refusal of workers’ rights.
It is understood that HMRC inquiries are way into the situation where workers have allegedly been left with unpaid tax bills and HMRC are issuing advice urging people to be clear what they were signing up to!
Arrangements often include the use of limited companies whose affairs are administered by someone else on the workers behalf and where the worker is given a small weekly wage plus expenses and dividends.
Whilst self-employment and zero hours contracts can be a good way of providing and engaging services as they can offer flexibility for both engager and worker, they may not work for all. Self-employed workers and Directors often have many more responsibilities than employees as well as potentially more uncertainty and less rights.
On the other hand, employees may have less flexibility, be under more obligations and be at risk of sanctions if they choose not to undertake the duties required, but will benefit from certainty that the responsibility to withhold and pay over tax and NIC is that of their employer and they often have stronger employment rights and benefits i.e. paid absence, sickness etc.
So, what can people do?
It is important to remember that it is the workers responsibility to ensure that they are paying the correct amount of tax and, where they are the Director of a limited company, that they are ultimately responsible for ensuring that it is properly run, not the person administering it for them.
It is possible to manage the risk of inappropriate actions, such as those stated above by carrying out a few simple safeguards, as follows:
- Obtain copies of all appropriate documentation, including:
- Companies House incorporation documentation
- Annual company returns
- Annual company accounts
- Ensure that you receive regular reports of activity, including:
- Monthly RTi PAYE submission documents and receipt notifications (at least as a screen print)
- Monthly RTi payment submission documents
- Access to the HMRC online account showing submissions, payments and liabilities for PAYE, CT and VAT.
- Business bank statements
- Engage an independent accountant to undertake any self-assessment responsibilities you have, as they will also be able to consider if the arrangements and documentation from any administrator stacks up.
However, workers should also consider if in fact the arrangements that they are engaged under are right for them and that they are happy with the structure and their status in the first place. HMRC are keen to ensure that wherever possible workers are engaged as employees and that PAYE is correctly operated and that full employment rights provided to the workers. Where the arrangement takes any other form, it is likely that HMRC will want to review the position and ensure that they are appropriate and fully compliant. With HMRC taking appropriate action where they are not.