When should a subbie be an employee for tax purposes? We are referring to being ‘forced’ to move on to PAYE. There is a lot of chat about this, but unfortunately, there isn’t a simple answer to this question.
The first point to note is that for insurance and health and safety purposes, subbies are almost always employees (you can read more about this here). But the rules are different for taxation. When reading this, please bear in mind it is our interpretation of feedback we get from clients, and you must seek professional advice.
So, back to our first point – when and how does HMRC decide that a subbie should be an employee on PAYE ? The feedback we get is that the test seems to be about regularity and frequency of work, and what else they do.
With multiple caveats, here are a few scenarios and our views:
- If you use the same subbie for 5 days a week, every week, and they only work for you, then they should probably be on PAYE.
- If you use the same subbie for 2 days a week, but the same two days every week, then they should probably be on PAYE.
- If you use the same subbie for 2 days most weeks, but on different days, and then they also work for other people, then being self-employed may well be acceptable because they are a freelancer.
- If you use the same subbie for 2 days a week, every week but on various days, and the rest of the time they do their own jobs, they may have to be on PAYE because they are not true freelancers.
The reasons employers like to use subbies is that:
- It avoids employers NI, pension contributions and paid holidays.
- It avoids the complex HR requirements and employers’ rights issues.
- It gives the employer a flexible workforce that can be useful as work ebbs and flows.
For the subbie:
- It provides flexibility.
- There may be tax advantages.
So, what happens if an employer uses subbies when they should be employed? We are aware that HMRC have had a small hit squad looking into this – I am not sure whether this is national policy or just what has happened locally. They would investigate companies and turn up on site. Our understanding is that whether somebody should be on PAYE is the employer’s responsibility and HMRC could back-date employer National Insurance contributions for several years.
Importantly, there are not any specific bulletproof tests as to when it’s OK for a subbie to stay self-employed, but the net is tightening all the time with all the Pimlico and Uber court cases (you can read about the Pimlico case here: Plumber wins workers’ rights battle against Pimlico Plumbers – BBC News)
If you use subbies, then you must take professional advice on whether they should be on PAYE. Please do not rely on this article as it is merely a discussion piece and not advice.
On that note what have your experiences been? Has anybody been nabbed by HMRC on this issue? How do you interpret the ‘rules’? What does your accountant say? Let us know over on our Facebook page.