Make sure you don’t come unstuck if you are employing a secretary or assistant. Specialist medical accountant Vanessa Sanders shows what to watch out for.
When contracting anyone else’s services, you need to consider their status from a practical perspective. There is a difference between employed and self-employed, which is governed by the facts of reality rather than by what you agree.
It is therefore important for you to understand that, with self-employment, there are a number of practical aspects which need to be considered to ensure they demonstrate the badges of trade. So you need to ask:
- Do they provide their own equipment or use their own premises?
- Do they do the work in their own time or do you prescribe when the work is done?
- Do they take any financial risk – for example, if the job is not satisfactory, do they have to correct it at their own cost? Do they charge a fee regardless of time spent?
- Can they offer a substitute or carry out work using their own staff?
- Do they carry their own insurance?
- Do they provide services for others?
HM Revenue and Customs (HMRC) has a toolkit to help you to assess the status of people with whom you work. If you decide to use this, then you could be asked whether you have taken the findings and applied them. So beware before using any such tools, as their provenance may skew in favour of a pre-determined result.
Many things point to employment or self-employment. HMRC would like everyone to be employed so that it can collect tax through PAYE and no expenses would be allowable. However, there are a few things you can put in place to help yourself:
- A contract for services which states that the subcontractor is responsible for their own tax and National Insurance;
- Never pay holiday, sick pay or bonuses;
- Do not pay the same amount regularly; pay by job done or each report written;
- State that you are not in a master-servant relationship;
- Ensure they use their own equipment and their own time;
- Allow them to offer – and pay for – a suitable substitute.
If you are found to be an employer, then HMRC expects you to pay over the tax and National Insurance due. To calculate this, it will gross up the amount you have paid for both tax and National Insurance, plus it will add on employer’s National Insurance and charge interest and penalties.
HMRC will seek to go back for as long as this relationship has been in existence. This could prove very expensive indeed. So protect yourself as far as possible.
Vanessa Sanders (right) is a partner at Stanbridge Associates, specialist medical accountants