Self-employed v Employed

MPN Member: Elliot Cohen
Business: Shacter Cohen & Bor
Talk date: 12th March 2019

Shacter Cohen & Bor are a 4-partner firm based in the centre of Manchester. We undertake work throughout the North West, the Midlands, London and elsewhere around the UK. Our clients are sole traders, commission agents, SME’s, partnerships, large and small family companies. Typically up to £50M turnover.

We’re happy to meet any introductions to discuss their situation without obligation to see whether we can assist with VAT, PAYE, tax enquiries, fundraising or generally help the business to grow.

Today I talked specifically about the differing benefits and tax implications of being self-employed or employed. I showed various calculations comparing PAYE and NIC and I showed there would be significant savings, for both employee and employer, if the worker qualified as self-employed. I pointed out that a self-employed worker may forgo certain employment rights such as security of tenure, Statutory Sick Pay, Statutory Maternity Pay, holiday pay, redundancy, wages in lieu of notice etc. [ although consideration has to be given to a recent “ Plummer “ Case  which is currently going through the Courts.]

The employment rights are also a consideration for any prospective employer to consider.

Various tests are applied to determine the Status of a worker: mutuality of obligation, substitution, provision of tools of the trade, method of payment, financial risk/profit etc.

I cited 3 different tax cases which dealt with these principles and explained why the tax tribunals considered the position one way or another.

Correctly identified for tax purposes

It is extremely important for an employer to ensure that the Status of a worker is correctly identified for tax purposes. This is especially the case if that worker is treated as self-employed. If HMRC challenged the Status, the consequences for an employer making a mistake can be financially painful. The employer may be liable for back taxes and National Insurance Contributions plus potential penalties and interest.

I therefore recommend that an employer should always seek advice from an Accountant when considering taking on workers.