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Who Pays The Self-Employed Tax

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Julie Butler - Expert Author

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5 March 2013

It is well known that farming and equine businesses are seasonal and have high fluctuations in volumes of work. Such businesses have relied heavily on genuine self-employed subcontractors. However, a recent tribunal case Yetis has shown the need to check that such workers are genuinely recorded as self-employed and paying over their own tax as otherwise the tax will be payable by the employer.

Yetis v Commissioners for HMRC & Style Superior Windows (TC02410) is an example of a worker who was willing to be self-employed until the tax was due, but who then claimed to have been an employee and was, eventually, found by the First Tier Tribunal to have been employed.

It is this ability to “claim to be an employee” which is a worry.

Assessments for three old years were discharged because Mr Yetis was found never to have been self-employed, meaning that his ‘employer’ should have accounted for PAYE and NICs. A lack of documentation did not help matters, but Mr Yetis was aware that he, like other salesman engaged by Style, was not treated as an employee and had apparently assured the company that his tax was up to date.

The key factor is for businesses using the services of a subcontractor to obtain copy documentation proving not just the self-employed status but that the tax has been paid.

The tribunal judge (Mr Sinfield) considered all the key principles that have developed in the employment status field over the year and followed the approach seen in Market Investigations Ltd v Minister of Social Security (1969) 2QB173 of looking at whether the individual was in business on their own account.

The company confirmed in evidence that the taxpayer was obliged to provide personal service at all times, no substitutes would have been permitted, and he could not reasonably have worked anywhere but at the location specified by the company at the same time.

The business taking on the workers should also assess the status of employed or subcontract. They should understand if the role is really employed or self-employed and embrace their duty in this regard. The “penalty” of having to pay all the relevant PAYE and NIC serves as a very good reminder to fulfil obligations, eg ensuring there is a “substitute” clause etc.

Mr Yetis had no capital invested in the business, he could not make a loss and was paid £200 per week even if he did not generate any sales that led to commission payments. The fact that the working arrangement is amicable does not mean the subcontractor is honouring their part of the arrangement.

When discussing the legal principles, Mr Sinfield confirmed that no one test can determine every case and that the ‘in business on your own account’ test is more relevant than control. Needless to say this does not sit overly well with cases such as JL Windows and Door Services and Molloy v Commissioners for HMRC SpC733, Express and Echo Publications Ltd v Ernest Tanton (1999) IRLR367 and Montgomery v Johnson Underwood Ltd (2001) IRLR269 which were predominately decided on specific “tests” such as control and personal service.

This case demonstrates that the courts can still be somewhat unpredictable in their approach and the weight they will give to different factors.

The use of subcontractors can be beneficial for small businesses but it must comply with all the various rules on both sides of the transaction, and nothing must be taken for granted.


About the Author

Supplied by Julie Butler F.C.A. Butler & Co, Bennett House, The Dean, Alresford, Hampshire, SO24 9BH.  Tel: 01962 735544.  Email; j.butler@butler-co.co.uk, Website; www.butler-co.co.uk

Julie Butler F.C.A. is the author of Tax Planning for Farm and Land Diversification (Bloomsbury Professional), Equine Tax Planning ISBN: 0406966540, and Stanley: Taxation of Farmers and Landowners (LexisNexis).



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Article Published/Sorted/Amended on Scopulus 2013-12-04 09:15:42 in Tax Articles

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