Your business is struggling but you’ve found a second job with another firm. The trouble is your employment status will mean your pay is liable to PAYE tax and NI. Can you divert the income to your company to prevent this?
Other income
You’re a freelance worker who provides services through a limited company in which you own all the shares. Like many businesses, you’ve been hit hard by the fallout from coronavirus. The part-time second job you’ve found will help but the owner wants to put you “on the books” as an employee.
Freelance status?
You hope to persuade the owner of the other business that your employment status is freelance (self-employed) on the assurance that you’ll include the income in your own company’s accounts. You’ve asked us for some tips to help his suggestion succeed.
Not a matter of choice
It might be possible for you to agree changes to the terms and conditions of the job to avoid being classed as an employee. Equally it might not. If control of the job is with the business or person you’re working for, you’ll be an employee for tax purposes and the employer must deduct PAYE tax and NI. For example, if the work is as a shop assistant, how and when it’s done will be almost entirely controlled by the business your working for.
Tip. Time constraints imposed by the nature of the work rather than by the person you’re working for can largely be ignored when considering employment status. For example, a bookkeeper who prepares monthly management accounts must have the work done shortly after the end of each month. This is a deadline imposed by the work and not the person you’re working for.
Tip. Only if you are able to control how and when you work is there an argument that a job is freelance rather than an employment.
Wages paid to the company
The admin, but not the tax outcome, would be different if you persuaded the person you’re working for to contract for the work with your company rather him personally. Subject to the trap below, PAYE tax and NI can’t apply to earnings paid to a company because the rules only apply to the earnings of a natural person. The trouble is this doesn’t get you very far. Even if you’re able to contract for the work through your company special rules mean PAYE tax and NI will still apply.
Trap. Even if your company contracts for the work the IR35 rules can apply which will result in PAYE tax and NI being payable. IR35 applies if had the contract been direct with you your status would be an employee. Where IR35 applies to work up to 5 April 2020, your company would be required to account for the PAYE tax and NI on the earnings. This is also the case for pay for later work if the business you work for is “small”. In all other circumstances the payer must deduct PAYE tax and NI before it goes to your company.
Trap. It doesn’t matter who’s responsible for paying the PAYE tax and NI, there’s no material advantage either way to you. Only changing the employment status of the job can make a difference.
If your company is paid for work for which had you personally contracted, your employment status would be that of an employee meaning that PAYE tax and NI cannot be avoided. However, they can be avoided if you can agree terms and conditions for the work which gives you control over how and when it’s done.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.