employed or self employed?

[1month2go]

My friend has been working for a company for 3 weeks and has been told that he has to be self employed and registered as such, including becoming vat registered, to be paid. He is provided with a company van and tools and told what jobs to go to and when. He invoices the company for hours worked at an hourly rate they offered him when he accepted the work.

This week they have said they are unable to pay him as he is not VAT registered yet. They have also said they are part of a tax scheme that means they have to deduct 20% from the amount he has invoiced them for and he can claim it back annually.

How can they say he is SE and then tax him? Is this legal? Even if he is SE? Which I don't believe him to be. I think part of it is to do with insurance as he was told if he wants to be employed by them all he can do is cleaning and not the maintenance work he has been carrying out for them.

[AWombWithoutAFoof]

You need TalkinPeace to help you here, but I'd say it looks really dodgy. I've been self-employed for years, but have never been VAT registered as I don't make enough.

[moogalicious]

Is he in the construction industry? In which case they are right, as he will need to be CIS registered, not VAT registered. They will deduct 20% and he'll have add it to his tax return after April 2015. If he calls the CIS helpline with his UTR they'll register him straight away.

In order to be VAT registered he would have a turnover of £77k year.

[moogalicious]

CIS = Construction Industry Scheme

[LadySybilLikesCake]

That really doesn't sound self employed to me. There's a criteria; using your own equipment, being able to sub contract, choosing your own hours etc. It sounds like they are making him register as self employed so that they don't have to bother paying tax or NI contributions for him.

What sort of business is he working for?

[moogalicious]

lady this is common practice in the building trade. The company pays the tax and NI out of the 20%. The worker then claims it back on their tax return

[moogalicious]

here

[1month2go]

He is essentially doing odd jobs for a company that carries out maintenance and repairs to private properties and businesses. So he could be painting or fixing a broken lock, cleaning gutters etc

[moogalicious]

Then that makes sense. Has he registered with HMRC as SE? If so, he can call the CIS helpline 0300 200 3210 and say he wants to register as CIS, giving them his tax reference. The company can then pay him and should give him monthly statements showing how much tax he's paid.

[1month2go]

He definitely won't be making anywhere near £77k either. It's around £300-£350 gross a week approx.

Thanks for all the quick replies, it's really confusing and they are so sure of what they are saying and he doesn't really want to rock the boat. I'm just reading a bit about cis from the link, thankyou

[moogalicious]

You're welcome. Sounds like he's got his wires crossed. Why doesn't he ask them if they meant CIS?

[1month2go]

He isn't registered as SE yet, no. It all really only became an issue towards the end of last week (his second week of working there) when he gave his hours in for the first week iyswim. So he thought he'd just get paid and then he's gradually been told all this. He's not confident with all the paperwork side of it and i think it's all more than he was intending to deal with but relieved to have the work at this time of year so completely unsure what to do. I'm trying to help but I don't know much more tbh.

[moogalicious]

ok, he needs to register as self employed first register as he needs a tax reference before he can be paid. Unfortunately, this can take a few weeks to come through. Once he has this, he should phone the helpline to register as CIS, although one of my subcontractor told me this was done automatically when he registered as SE so they may have changed it.

They won't pay him until he's sorted this out, so he needs to do it asap!

[moogalicious]

It's really easy to register on line using the link. He'll also need to do a tax return after April 2015 which can also be done online

[grumpyoldgitagain]

He's not really self employed going off your description

There is an am I self employed checker somewhere on the inland revenue website I think and I bet if he answers the tick boxes on that he is not self employed.
Sounds like they are using self employment as a way of getting out of some of there liabilities as an employer and if you look into it what they and he are doing is probably not legal from an employment law perspective

[1month2go]

Thanks so much for your help as this is all out of my comfort zone. Does this mean he will also need his own insurance? Does the cis registration need any form of qualification etc? He is good with his hands but not done any formal training.

[moogalicious]

No he doesn't need any formal training. The scheme was set up to stop builders tax dodging when paid cash. He should be covered by their public liability while working for them - he may want to check. My subcontractors are covered by our insurance for example but this might not be the case for him.

[1month2go]

Thankyou so much for pointing me in the right direction, I googled loads but because I didn't know about cis it seemed nothing I read was relevant.

[moogalicious]

At grumpy yes, our subcontractors often do their own work and so buy their own materials/have their own tools. But often subcontractors turn up and use our stuff.

And yes, they could be using it to get out of any obligations as he is not under any contract. In the building trade we use subcontractors as and when we need them - if work is short, as it can be, then we are not paying people to sit around doing nothing.

[grumpyoldgitagain]

The fact that they provide a van and tools and tell him where to go and when is what makes it dodgy

If it was his van and tools and he had a list of jobs that he did as and when in the order he wanted in amongst other customers jobs then no problem