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New payment scheme for family therapists forcing them onto PAYE

A fried has posed the following dilemma. I don't know the answer but thought that AccountingWeb readers may be able to help.

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Both my children are taught at home as they are autistic.  We are given funding by our local London borough and pay teachers/therapists to educate the children.  The money is paid quarterly: I submit a signed statement from each of the therapists as to how much they received and I’m reimbursed for the lump sum up to an agreed amount (unfortunately insufficient – but that’s another story!).  All the therapists are self-employed and fulfil that criteria as far as I’m aware (in that they don’t get paid holiday or sick leave; work for other families besides our own; hours per week vary from therapist to therapist and week to week but ranges from 9 hours to 16 hours; they provide their own work equipment; they have to pay for their own training).  Although I’m not responsible for the therapists tax returns, none have had any problems about being accepted as self-employed by the IR.

We have just been informed that the way we receive our payments is going to be changed: the money will still come from the borough but in the form of a ‘personal budget’.  We have been told that under this new payment scheme all therapists employed by ourselves must be employees, and therefore subject to PAYE.  The My contact at the London borough say they have discussed the matter with HMRC and that was their conclusion: no argument!  Everything else remains the same, we still have to find the therapists, negotiate pay etc. 

Leaving aside the additional cost of this, I’m concerned from the therapist viewpoint that if their work for us is constituted as PAYE, then the IR can argue that if they work for anyone else on the same basis, that should also be PAYE.

My question is: do you think it’s worth trying to argue that because the circumstances of their work hasn’t altered one iota, they should still be entitled to remain self-employed (in other words where  the money comes from is irrelevant – what is relevant is the terms of their service)?  Or does the London Boriugh have us over a barrel as ultimately they are paying the money to us: and if they decide that anybody who works for us with their money is PAYE, then so be it?

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Joined up Government

Mark,

Personal Budgets aren't something simply being imposed by the London Borough in question, it's a national initiative aimed at giving people choice over how they spend what's due to them in respect of their care needs.

The unhappy side effects are that (i) it costs more, because the LA can recover the VAT, but the individuals can't (it can happen they'll get services from the LA who might then even need to charge the VAT that they can't recover) and (ii) it does make some people unwitting employers.

General principles apply though. It's not up to the London Borough to decide whether or not the therapists will have an employment arrangement with their clients, and frankly they're overstating the position.

It's a question of fact, whether there is an employment arrangement and on the facts presented, I'd say that the therapists are now, will in future, and always have been self-employed (engaged under a contract for services) with respect to their relationship with your friend (which is the only relationship to be considered).

They do though have a risk that HMRC can turn up with their hobnail boots on and claim the relationship is employment (which is where I suspect the London Borough is coming from - arse cover). I'd say that was a minimal risk on these facts.

The sorts of situation where people have been caught are where they have live in carers and the like.

You can always get Matt Boddington et al to set them up with a contract that will put it beyond doubt though.

EDIT: Lot's of information on the LITRG website, by the way.

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By neileg
25th Jun 2012 16:46

Local authority

Local authorities have a lemming like tendancy to follow wherever HMRC leads them. The idea of challenge rarely enters their minds.

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