At what point do you need to go onto PAYE?

[becstarsky]

I?ve checked HMRC?s guidelines on their website and I?m none the wiser on this. All of their advice seems to be geared towards ensuring people aren't tax-dodging - reasonable since they are HMRC - but since I'm not trying to tax dodge it just seems to be at cross purposes to what I'm trying to find out.

So I?m self-employed. Currently I?m on a four day a week freelance contract (6 months) which is coming to an end. Then I?m going to do some other work part-time for nine weeks.

Then the place where I?m currently freelance are asking me back to do another longer contract (10 months - but I'm likely to take breaks within the contract of two to three weeks to work for others). It will be four days a week in a different role to the one I've just done ? I?ll be doing other work on the fifth working day each week even when I'm not taking a break from them.

My problem is that I?m wondering if I should be PAYE on this second contract as it is longer, and so much of my employment and income is coming from one client. And the ?other work? I do might not be invoiced for a while, so all of my invoices are to the same company, even though I?m working for others ? but my other work won?t be invoiced until later.

However, most contracts of employment would state that my creative work is their property while I?m in their employment if I?m an employee, and usually prohibit moonlighting for other companies ? and I?d plan to be doing creative work and working for other companies? And I really, really like being freelance. I only work 38 weeks per year max at the moment ? and can pick and choose my assignments. If I was on PAYE I think I?d end up with my allotted 25 days of annual leave and asking for flexible working (instead of just informing clients that I am only available at x time ? which I find far less stressful).

Am I alone in finding it really confusing? Any advice? Thank you!

It IS really confusing - the background to this in terms of HMRC's internal and external guidance changes constantly, and every time they take a case to court expecting things to go their way the opposite happens so they write a whole load of new guidance to try and sustain their insatiable desire to collect as much revenue as possible through PAYE seemingly regardless of taxpayers liability in law or natural justice.

The bottom line for you is that all the risk is actually for the company engaging you, so as long as they are happy there is nothing for you to worry about from HMRC - just watch out for any clauses in the contract obliging you to indemnify them against an HMRC investigation.

Having said that, you could probably save a whole bunch of tax (well mainy NI actually) by turning your business into a limited company, and then employment status would become your problem. Get an accountant and/or look at the Professional Contractors Group.

Thanks MrAnchovy that is very helpful. I'm glad I'm not the only one who gets confused! I do have an accountant, and he said that the worst that could possibly happen would be if I were audited that there was a risk that whoever audited me could question it. He said that if they decided I should have been PAYE then they'd tell me that I needed to pay tax on the things I'd claimed against tax - ie that my expenses shouldn't have been counted against tax. But he said that I should appeal anyway if that happened, since he didn't think I should be PAYE in my situation. He also said that since I earn comparatively little and keep good records he didn't think I'd have a problem. But I'm the type of person who finds 'oh it'll probably be alright' quite stressful - I'd rather know for sure that I'm doing the right thing.

But if I went on PAYE I'd be equally stressed by hiding the fact that I was working for other companies and hiding creative work that I didn't want to become property of my employer, and by having to ask for sabbaticals all the time to do other projects, so that wouldn't help either!

Thanks v. much for replying - very kind of you

I was recently investigating this for myself and found talking to the following company was helpful: www.paystream.co.uk/

Their website is also quite good. There are a number of companies providing similar services.

As MrAnchovy said there may be benefits to you in setting up a limited company, and companies like Paystream can do all the administration for this - obviously for a charge, which would be tax deductible.

I would take care that you get proper advice as it is you that would be investigated by HMRC (think this is the audit your accountant is referring to) and who would be liable for back tax, NI, interest and penalties if HMRC did an investigation and found that you were an employee rather than contractor - therefore it is your risk. The company is getting the benefit of not paying Employers NIC for you.

You should also get advice on the terms in your contracts so that you are not referred to as an employee and it does not seem like an employment arrangement.

Good luck!

cloudofpink that is totally wrong. PAYE is the employer's liability and HMRC cannot and will not chase the employee for any sums due if they decide there is an employment relationship, as becstarsky's own accountant has 'properly advised' him or her and I have confirmed.

I do not see any reason to recommend the company you mentioned over the many other providers of similar services to freelancers, if the OP is interested in going down this route an unbiased source such as the PCG or an accountant bound by professional regulations to give the best advice is the appropriate place to start, not a company with a product to sell.