Self Employed Holiday Pay

[gwyther]

Hi

 

My husband has been working on the same contract for over a year now and has up until now received holiday pay. The holiday pay was always marked down on the pay summary along with 20% CIS deduction and agency fee. He works for one company and get paid through another?

 

Last year on the Friday before Christmas all of the outstanding holiday pay was paid to them. This year my husband has taken a number of days as holiday and been paid for them however, many of his co-workers have not taken any of their days. About a week ago they were all told that they would no longer be receiving holiday pay. This came as a shock to my husband but at least he has had some benefit from it not like some of the blokes he works with.

 

My question is - after that rather long winded story - Where does he stand regarding being employed or self employed? As they have already paid holilday pay and it shows on his payslips how does he stand with this? IR35 What is it and does it affect him?

 

Lots of questions really

 

Sorry

[honeybee13]

Hello there. I don't know the answer myself, but someone here should. Is your OH a contractor through an agency?

 

If he was self-employed, I wouldn't expect him to get payslips because the employer would be him wouldn't it? Anyway, as I said, I'm no expert, look forward to reading other people's thoughts.

 

Anyway, here's a link to directgov that helps you work out your employee status.

 

http://www.direct.gov.uk/en/Employment/Understandingyourworkstatus/DG_10027916

 

My best, HB

[gwyther]

He works for one company and gets paid through another. The company he works for sets out salaries etc. It gets really complicated and i dont really understand it.

[kurvaface]

You need to check if he is actually self employed.

 

If someone else sets out the terms of his work, ie the hours, the holidays, deduct tax and provides pay slips that sounds very much like being in employment.

 

A self employed person sets their own hours, pays themselves holiday pay, is repsonsible for their own tax affairs and is free to choose the working conditions.

 

Which one do you think he is?

[gwyther]

That is what I thought. Then we come into the area of IR35 who is responsible for that seeing as he is only paying 20% there will be a shortfall if he is deemed to be employed and would IR35 affect him as he is working as a sole trader on CIS and not as a LTD company?

[honeybee13]

CIS, is that the building trade?

 

My best, HB

[gwyther]

Yes CIS is a building trade thing for tax its a form of PAYE and usually 20% is stopped at source

[honeybee13]

Hello again.

 

I've just looked up CIS on the Inland Revenue website and this is a scheme for contractors and sub-contractors. It might be worth a read of HMRC's information, which also has a section on calcluating what status your OH has.

 

My best, HB

[kurvaface]

This is off an Accountancy firms web site

 

 

IR35 Rules Explained – Determining Status: Part 1

 

Related Article

 

What is Income Shifting?

 

When HMRC look at an engagement to test its status, they will be looking for two things: contract wording which shows the engagement to be between two independent parties and working practices that demonstrate this independence. It is true that where neither the terms of the engagement, nor the working practices give a clear indicator of status, HMRC will look to other factors such as the financial risk being taken by the contractor and how their business is run (e.g. expenditure associated with running a business), but the overwhelming majority of cases are determined by the working practices and the contract terms.

Let us consider both ends of the spectrum:

IR35 Rules Explained - Hell

 

Sadly, more often than one would like, it quickly becomes apparent by virtue of the contract wording and/or the working practices that the engagement would be classed as a contract of service (employment).

We have seen practices which indicate that the client is supervising and controlling the contractor’s hours and location; work is being handed out on a task-by-task basis with little or no input by the contractor; it is evident that the client is only interested in the services of the individual and will look to the agency to find a replacement if the individual fails to deliver; the payment is by the hour with overtime available; there is a long notice period which is an indicator of employment etc.

Clearly, no amount of re-writing of the contractual terms will assist a contractor if these are the circumstances and the contractor should be considering paying themselves under the deemed salary calculation.

IR35 Rules Explained - Heaven

 

In an ideal engagement, the End Client would be asking your company to take their business ‘on a journey from A to B’. Deferring to your knowledge and expertise, the Client would be looking to you to map out direction to be taken, identify the key milestones to be achieved en route, the project deliverables and what ultimately constitutes a successful project sign off. You would not only decide how the project was to be delivered, but if there were a number of locations where the work could be done (including your own offices), you would decide where and when. Furthermore, your company would be undertaking the assignment for a fixed fee and when the project was delivered on time (even if meant that in the final three weeks, you were working 18 hours a day and having to bring in outside support to do so) your company would find another engagement elsewhere.

IR35 Reality

 

Reality, of course, lies in between (although we hope much closer to IR35 Heaven!). Apart from the obvious Health & Safety issues contained within an 18 hour day, there are other practical considerations. Rarely does a client have no knowledge of the systems, processes or procedures to be delivered and anyone who has been involved in a project will know that what is envisaged at the start is rarely the finished product – projects change, overrun and get cancelled - rarely could a contractor work for a fixed fee. On an even more practical level, nobody operates in a vacuum and so a contractor will have to engage with the client’s staff at the times that they are available, the project may depend on variables not within either the End client’s or the contractor’s control; there may be security issues which require the work to be completed on site and so the list of variables continues.

Therefore, what both HMRC and we on this side of the fence will be considering are the three key areas of any engagement: Control, Personal Service and Mutuality of Obligation.

Other IR23 Rules Explained in IR35 – Determining Status: Part 2. Other factors relating to financial risk and being in business on ones own account should also be considered, although they are secondary to the key issues in bold above

[gwyther]

Hi

 

I have just done the Employment Status Indicator on HMRC website and he comes out as employed. So if that is the case he is entitled to holiday pay but even with the post from Kurvaface i am still not sure how IR35 works. My understanding is that it was set up to stop Ltd companies paying enourmous salaries to themselves and drawing down dividends thus avoiding tax. Is that basically right, and if so how does it affect us? And would the paying agency the company he works for or him be liable for the excess tax he is bound to owe if IR35 applies?

[honeybee13]

I'm afraid it's too much for me. Does your OH have an accountant or does he handle his own tax affairs?

 

I'd be inclined to ask whoever pays him about the IR35.

 

My best, HB

[kurvaface]

I too think this is such a potentially complicated issue that you should explore getting conclusive advice from an accountant. The other thing you need to look at is national insurance and if it's all in order.