You paid a freelance trainer £100 for a training session. After an inspection by HMRC, it has become apparent that you should not have treated her as self-employed but should have put the pay through the PAYE system. The £100 you have paid will be deemed the net pay after tax and NI, so you have to work backwards from this to work out the gross amount of pay someone would earn to take home £100. The tax and NI that would have to be paid would be approximately £60 and may additionally be subject to interest and penalties. If the trainer has declared this income in her personal income tax return, it may be possible to reduce your liability by the amount of tax she has paid on the earnings, but this will have to be by agreement with HMRC.
In order to be a self-employed worker, a person has to be set up in business. Evidence of this would include:
- registered with the tax office and able to quote their reference number
- VAT registration (although not necessary as they may be below the registration threshold – set at £64,000 for 2007-08)
- they provide the same services to more than one organisation
- they can refuse work or send someone else in their place
- they are paid a rate for the job
- they do not receive holiday pay, sick pay or redundancy
- they supply their own equipment
The key tests for self-employment are mutuality of obligation and control. For someone to be self-employed there must be no mutuality of obligation. This means that the employer is not obliged to offer work and the self-employed person is not obliged to accept work. The degree of control exercised by the employer must also be in keeping with self-employment. If both of these tests point clearly towards employment or self-employment then that is decisive. If both are inconclusive then the other factors must be considered.
Note also that a person will be registered as self-employed for certain areas of activity. So, for example, a person may be registered self-employed as an actor but working for you as an administrator. You would not be able to treat them as self-employed for your work.
A final point to consider is the nature of the work you are offering – do you wish to have an employee working directly under your control rather than buying in the service from a business? This situation may arise in relation to various services that are provided by consultants – you may need to decide whether you wish to outsource the service to a consultant running an independent business or employ a member of staff.
If you are uncertain as to whether a worker is self-employed, they should be treated as an employee and PAYE and NI deducted using an emergency code until their status is verified with HMRC.
For those who are definitely self-employed workers, you should be treating them as suppliers and receiving invoices.
