New client treating employee as self employed

New client treating employee as self employed

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I have been approached by a potential new client. The client runs a business which has one worker earning £10,000pa. During 2012/13 this worker has been treated as self-employed. I am convinced that the HMRC would see the worker as an employee. I am unwilling to prepare and submit the clients 2012/13 accounts without fixing this problem, although the previous accountant doesn't seem to have had a problem with the arrangement. Given that there is now one month left of 2012/13, what is the best way to fix this error?

I understand that a PAYE scheme should have been in operation throughout the past year and that the client should have been paying class1 NIC's (primary and secondary) and income tax to HMRC each month. Would the client need to retrieve the employee's class 1 NICs and income tax from the employee as he has been paid gross to date?

I have not had any experience of doing this so would be grateful if anyone could give me any pointers as to the best approach with HMRC or any guidance as to what level of penalties would be expected with a voluntary disclosure.

Replies (6)

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By User deleted
26th Feb 2013 16:26

Nothing to correct

Regardless of how blindingly obvious it may be to you, employment status remains a subjective matter. It's much the same (identical in some respects) as IR35.

As such, if the employer is satisfied that the worker is not an employee, it would be wrong of you to 'correct' the accounts. The appropriate course of action is for you to express your concerns to the client and make them fully aware, in writing, of the consequences of a successful challenge by HMRC. It may be worth running through HMRC's status checker with the client - although I am still cynical about its use in actual challenges, the results may be so conclusive that they persuade your client to "do the right thing".

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Replying to Eric T:
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By User deleted
26th Feb 2013 16:41

AML Regulations

Thanks BKD for your reply. If I were to leave the employee/contractor's status entirely in the hands of my client, would I not then have an obligation to report my suspicions to SOCA?

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By pembo
26th Feb 2013 16:41

whats your problem ?

Can see that if your opinion is that this person ticks the employee boxes then there may be an issue for the client as the compliance risk is of course firmly with them. However this can be a very grey area as you know and at the moment all you have appears to be your opinion. Unclear whether you've discussed this with the client but all you can do is make them aware of your misgivings regarding the situation and the possiblity of retrospective assessment/penalties if they have got it wrong. If they are unwilling to change the arrangement put your concerns in writing. The risk then lies with them and as a subjective area there are no ethical or other issues unless you create them.

 

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By User deleted
26th Feb 2013 17:00

AML

Unless you have reason to suspect that the client 'knows' - beyond doubt - that s/he ought to be treating the worker as an employee, and is deliberately doing otherwise in order to evade tax or other financial obligations, I don't think you have an issue. But once again David W's input on this would be appreciated.

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By andy.partridge
26th Feb 2013 17:39

Comfort

You are entitled to your professional opinion and it is your duty to advise your client. Your client does not have to accept your advice but you should consider how comfortable you are working with a client that doesn't like your advice. Indeed the client will consider how comfortable they are working with you too.

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By frustratedwithhmrc
26th Feb 2013 19:22

With Self Employment issues, it's rarely black and white

Given that status issues are very subjective and that even those pursued to the high court have been decided on quite subtle aspects, I doubt that an accusation that the client "knew beyond reasonable doubt" would stand.

In similar circumstances, I would agree with other commentators that you should obtain a written letter of comfort from your client as to his rationale for this person to be in self employment. Given reasonable assurance I would take no further action.

If HMRC feel the need to act (unlikely), then they will do so and if they can prove that the role was an employment rather than a self-employment position, the client will have to suffer the consequences.

Having pointed out the consequences of the 'employee' being in false self employment and receiving a letter of comfort in regard to this, you will have reasonable protection in case of professional or legal action (possible, but unlikely).

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