An employee has agreed with the company owner to undertake some work at home, outside office hours and using his own equipment.
A 'fee' has been agreed for the package of work, and the fee is only payable if the work meets the agreed spec.
The employee would be happy for the payment to be made through payroll with tax/NI deducted (he doesn't currently complete a SA return and is not registered as a sole trader), but the business owner wants an invoice. I would feel far more comfortable putting the payment through payroll.
Can the payment legitimately be made without deduction of tax? Is there any case law covering this sort of situation?
Thanks
Replies (16)
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What's the point putting it through payroll if you aren't going to make the necessary deductions.
He either needs to treat it as enloyment income or self employment. You can't mix the two.
Don't do it
You are right. It must go through the payroll as pay. Anything else is wide open to disaster. The employer's desire to avoid employer's NI is surely enough of a red flag!
If it genuine self employment income, then I see nothing wrong with the employee sending his employer an invoice for the services undertaken outside of the employment.
If it is an extension of his employment, it should be going through payroll.
You will have a problem
because the (new) engagement came about because of an employee/employer relationship especially as the 'employee' has not previously been self employed and has no other clients/customers.
Wow
It is entirely clear, from your first two paragraphs, that the work to be undertaken is not that of an employment [regardless of the work being done by the employee for the employer].
Without knowing what he does in his employment, and what his employer has asked him to do at home, you think it is "entirely clear" that any payment for doing some work at home is not derived from the employment. And this is so even if he is doing exactly the same work at home as he does for the employer at other times.
The employers of every homeworker in the country will be glad to know that PAYE doesn't apply to them.
Not Possible
It's not possible to form any conclusion from the facts. The default is that payment to an employer to an employee is a pay,ent of employment income, unless it can be shown that it arises for some other reason.
If that reason, based on points (a) to (d) that you mention, means that it is not employment income, then it is entirely clear that it would be trading income.
The employee may have self employed income
If the employee starts a business, and registers it etc, and this is not actually in breach of his employment contract and the work is different to his work as an employee then he could be paid gross as a supplier.
A lot of hassle for the employee.
If the reason that the one off job was offered because he was an employee, then I would suggest that it is income by reason of employment, and should be subject to PAYE.
If, alternatively, the employee competed in tendering for the work, then it could be argues that it is not by reason of employment and should not be subject to PAYE.
I think a very relevant question is...
Is the work being carried out, the same (or similar) the work he carries out on a day to day basis at his desk in work?
If the answer to that is yes, I would say its simply employment income.
Basil
What I said was that if you conclude that it is not employment income based on your points (a) to (d), then by their very nature, those points would almost certainly point to it being trading income.
But there is not enough information in the original question to form any conclusion, and my original point was that it is far from "entirely clear" that this is not employment income.
The consensus is that it is employment income unless it is shown to be otherwise.
ITEPA has priority over ITTOIA..
Sorry Basil, but I just don't see it. To me it's employment income, and much as I always respect the logic of your responses and the precision of your arguments, this time I just think you're stretching too far.
Your recent posts on another thread supporting the separation for VAT purposes of two companies run by the same owner were fascinating, and I followed your arguments with keen interest - even though it seemed to scream artificial separation from the outset, you had me convinced in the end. I was half expecting you to convince me again on this one, but if it was my client I just couldn't support any treatment of these payments as anything other than employment income.
One more for Basil's view
for what it's worth.
No control over who carries out the work if undertaken at home on own equipment.
All financial risk falls on quality of work provided. There are apparently no 'perks' of employment such as holiday pay, pension, or overtime rates.
There is no default position for income. Everyone starts somewhere and successful conclusion of this work could lead to a successful trade, or a hobby, or disillusionment.
Appears to be separate work, as if merely a carry over of employment duties the out of hours condition could not be complied with due o the need to start at the beginning and work through to the end. Could be reaching up but not indicative of employment.
Marion & Basil
Actually, for what it is worth, I do not disagree that it may not be employment income. I just think that on the facts given it is impossible to say that it is not. Employment income does take precedence in the sense that you must first consider ITEPA before considering ITTOIA. The facts are that he is getting paid by his employer, so for it not to be employment income the evidence has to point away from it being derived from the employment. Has he been asked to do this work because he is an employee, or did he tender a bid to do the work in open competition?
My main issue with Basil's analysis is that he has used the badges of trade (which are used to determine self employment) to conclude that it is not employment income, but then disregarded his own findings of fact in relation to those badges to conclude that it is not self employment.
He is clearly producing something and getting paid for producing it. If it is not employment income it most certainly will be trading income even if it is a singleton transaction.