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Reclassification of Self employed to employed

Reclassification of Self employed to employed

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Client has had PAYE visit - subcontractors who paid CIS tax have now been classified as employee's.

IR have taxed in full and gave credit for CIS tax deducted. Client has to pay difference - can additioanl tax collected be claimed by subcontractor/employee and paid back to client?

Same position with Employee NIC's. Subcontractors have paid Class 2 and Class 4 contributions. Client is now having to pay Class 1 contributions on their behalf.

Subcontractor will now have paid Class 1,2 & 4 contributions over the maximum can this be reclaimed by subcontractor and paid back to client?

Anybody had any experience of this?
Gary Donald Fraser

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By Accounting WEB
05th Dec 2001 22:43

Subcontractors
As per my previous comment the same thing should apply. The IR officer should only calculate the PAYE due less tax already paid. They don't always do this,so you may have to ask and then they will look into it. Its called equitable liability

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By 2156806
28th Nov 2001 08:50

Thanks for all your comments. Most people seem to agree with my thinking on the NI overpaid.

However has anyone had any experience in recaliming the tax overpaid.

Subcontractor has been assesed on earnings and received credit for amounts deducted under CIS scheme.

He would have then paid any balance due.

Should he now not be credited with the futher tax paid on his behalf by the employer? (i.e tax at normal rates less CIS tax at 18%)

If he is he will then be entitled to a refund surely?

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By Accounting WEB
26th Nov 2001 11:11

NIC Jungle
As regards national insurance contributions, although the employer appears to have paid the reclassified employees Class 1 contributions, the employees will be deemed to have paid such contributions. There are then various possibilities, depending on the time of the contributions year that the subcontractors were reclassified, and the total amount of contributions paid.

One possibil;ity is that each individual will have exceeded the annual maximum of national insurance contributions. The other, less well-known, possibility is that where Class 1, Class 2 and Class 4 contributions have all been paid in the same contributions year, then there is a Class 4 'limitation'. This is not granted automatically, and has to be claimed by contacting the quaintly named Inland Revenue NICO Deferment Group at Longbenton, Newcastle-upon-Tyne NE98 1ZZ.

I have recently claimed for a year where a client ceased self-employed and then resumed employment. The converse can apply, as well as situations where an individual is both employed and self-employed simultaneously.

Application should be made to the Deferment Group on behalf of each former subcontractor quoting the NIC number. A very useful guide to this area is Tolley's National Insurance Contributions annual, although the principles and calculations are not for the fainthearted.

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By Accounting WEB
25th Nov 2001 19:57

reclassification of subcontractor
You,the employer should only be charged Class1 NIC for the reclassified employee at the rate up to and including the maximum NIC payable for the year. The IR officer should be checking out the Class2 and 4 already paid because it is feasible for this extra Class1 to be allocated to the individuals NI account and then a refund made. The IR officer should only ask you for the difference between total Class1 due and Class2/4 already paid. Otherwise it could then show an overpayment and yes the employee could be sent a refund for money he has not paid.

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By Abacjm
24th Nov 2001 02:26

Sub-Contracted Employees
Must have been a very generous client to pay his subbies Tax & NIC. Will that count as a BIK for the (now) employees, I wonder?
AS the REvenue have by your way of telling it, allowed the amount of tax already suffered against the PAYE payment by your client, I cant see thta there is anything else to claim. The subbie has only paid CIS tax and Class2/Class4 and not also Class 1 and PAYE as you stated previously. The client paid the latter, did they not?

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By 2156806
23rd Nov 2001 14:11

reclassification
Unfortunaltely it is inpossible to argue the status case as employed and self employed were paid at same rates.

However i was thinking that the subcontractor (now employee) could claim from the Inland Revenue. The amount of the claim would be the amount of tax and NIC the client has now had to pay on their behalf.

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By Abacjm
23rd Nov 2001 13:18

CIS and Employees
My first inclination is that it is the client who is out of pocket here, becasue an hourly rate under self-employment basis is probably a lot higher than if they were on PAYE basis - if only to reflect the Employer's statutory obligations. ie ERs NIC Co Pension, SSP etc.
I dont fully understand your point aboput the sub-contractor claiming the additional tax & NIC and paying it back to the client. Who from?
Presumably the Revenue have billed the client for the underpayments and collected from both. I would contest the assessment aonthe basis that the payments made reflected self-employed rates as against PAYE rates.

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