Post dated 5 May 2020

If you are self employed, you could benefit from the Self Employment Income Support Scheme (SEISS), which is the Government support for those sole traders and partnerships affected by the Coronavirus pandemic.

HM Revenue and Customs (HMRC) have been refining the advice and support in respect of the SEISS, so you should revisit and review the guidance.  As with a lot of the support, it is unprecedented, so in many cases, we (as accountants) are supporting our clients based on the limited information available.

Please revisit the guidance here.

What You Need To Be Aware Of

There are a couple of points which you should be aware of, which may affect whether you can claim or not.

  1. ACCOUNTANTS CANNOT MAKE THE CLAIMS FOR THEIR CLIENTS.  HMRC have been very specific about this.  You will need to make the claim yourself, and an important element of this is your Government Gateway account.  You will need to make sure that you have an active Gateway account for you as a sole trader or member of a partnership.  If you can’t cialis coupon online find your details, it’s important that you deal with this ASAP, as this will hold up your claim.
  2. HMRC will contact you and invite you to apply.  Please don’t contact them directly.  They expressly state that doing so “will only delay the urgent work being undertaken to introduce the scheme”.
  3. The online scheme will be available from 13 May 2020, so it sounds like the contacting by HMRC will be IMMINENT.
  4. The scheme is only available for people who were registered as self employed – sole traders or partnerships – before 5 April 2019.  There are further stipulations, see ‘Who Can Claim’ in the guidance.  It is NOT available for directors of limited companies or buy to let landlords.
  5. Please be extra vigilant of scams, particularly texts, calls or emails claiming to be from HMRC, offering financial help or a tax refund and asking you to click on a link or to give personal information.

Although we cannot make SEISS claims for clients, we can provide help and support.  If you need this, please don’t hesitate to contact us.

class 2 NI

If you are self employed, trading as a sole trader or partnership, it is highly likely that you will pay Class 2 National Insurance (NI).

It is the way in which the self employed can make contributions towards the state pension, and is usually paid for either every 6 months, or by monthly direct debit.  The amount for the 2015/16 tax year is £2.80 p/w (= £145.60 for the year).

However, from 6 April 2015, Class 2 NI will be collected through Self Assessment with income tax and Class 4 National Insurance.  The changes are designed to simplify the process, as all taxes will be payable together.  They will also activate an automatic exemption - there is no Class 2 NI payable on earnings below £5,965 (known as the small profits threshold), but in order to claim this, taxpayers had to make a deferment application.

If you are currently paying Class 2 NI, the final collection will be on 10 July 2015, as HMRC collect Class 2 NI 4 months in arrears.  For 6 monthly direct debits, the last collection will also be on 10 July 2015.

NB as Class 2 NI contributions count towards the state pension, it may be worth considering making voluntary contributions if your profits are below the small profits threshold, and you don’t have any employment income.  This will depend upon your personal circumstances and how many year's contributions towards the state pension you've already got.  If you wish to check your National Insurance record, please see here.

Further details in respect of the changes to Class 2 NI are available here.

 

What’s the difference between being employed and being self employed?  In a lot of situations, you’re doing the same work and there are often lots of similarities, even getting down to terminology to split the two.  However, there are some pretty fundamental differences – as anyone who’s been employed and self employed will confirm.

1. Go home and forget about it

In the vast majority of cases, if you are employed, you go home at night and forget about work, possibly not giving it another thought until you get in the next morning.  If you are self employed, you never forget about work.  You think about opportunities to get more customers, to improve your business, maybe your next marketing campaign.  You may worry about cash flow, getting orders, finding suppliers.  But either way, you will think about it more because it’s yours.

2. Get another job

If you are employed and you wish to change jobs, because you want a new challenge, or you don’t like the people you work with (or for), you can easily change employers, get a new job.  If you own the business, this may be a lot harder, especially if you have premises or employees.  Rather than a job, it can be viewed as an investment, one which you have sunk a lot of time, effort and money into, and one which you can’t easily walk away from.

3. What happens if it all goes belly up?

If you are employed and your employer goes bust, you are unfortunately unemployed.  You are free to get a job.  If you are self employed, the consequences may be much deeper.  You may lose personal money which you’ve invested in your business

4. What’s a holiday?

Employees are entitled to holidays under employment law.  They may have to take them at pre determined times, but it is still an entitlement.  If you have your own business, there can be a rather distorted view that you can have as many holidays as you want.  If you don’t want to work next week, fine, have a duvet week.  However, the truth is that most small business owners don’t get paid if they don’t work.  Many small businesses that rely on the time or the skills of the owner can actually be more tying.  Consider how tying a shop can be.  Therefore, business owners tend to work longer hours and have fewer holidays.

5. Employment protection

In addition to holiday pay, employees have protection and support from legislation, including National Minimum Wage, Working Time Directive and Discrimination to name a few.  Business owners don’t have the same kind of protection.  Take the National Minimum Wage.  It is not uncommon for the profit which a business owner makes to be at a rate lower than the National Minimum Wage.

6. The buck stops here

As an employee, you may encounter problems where the customer wants to take the issue higher to get it resolved.  However, ultimately the highest it can go is to the business owner.  It really is a case of the buck stopping here.

7. Who’s the boss?

An interesting aspect of being self employed is recognising who your boss is.  As an employee, it is almost always clear who you report to, who your is boss.  When you are self employed, you work for yourself, so your boss is you, right?  No, your boss is your customer.  They are the ones who give you work, who pay you.  If you have a service business, and have, say, 20 clients, this effectively means you have 20 jobs and 20 bosses.

8. The sky’s the limit

If you are an employee, you generally build your income up over the course of your career.  However, if you are self employed, and depending upon your business model, you may benefit from the risk and reward principle which follows self employment.  You have a very tangible reason to try your hardest to make the business as profitable as possible.  Your income may go through the roof, and you may become very wealthy.  Well, that’s obviously the idea, isn’t it!

We see many businesses and the question of whether someone is either employed or self employed comes up quite a lot, either when employing 'help' or for the person themselves.  It can be a complex area!

Why is this an issue?
There is a lot at stake for both sides.  The 'employer' has legal obligations for employees, including sick pay, holidays, and the whole issue of discrimination law.  They may even have to register as an employer.  If the person is self employed, they don't have to worry about this.  It is easier and more flexible to have an 'employee' classed as self employed - if the work isn't there, you can simply dispense with their services.  Financially, the 'employer' avoids paying employers national insurance, currently 13.8% of earnings over £144 p/w.

From the 'employees' side, it can also be more flexible.  They may even decide not to declare their income and evade tax (I cannot believe I just typed that!).

There is a perception that this kind of activity happens a lot with small businesses, fuelled by 'cash in hand' kinds of arrangements, although it is also common in larger organisations in certain industries, such as construction and security.

As you may imagine, HM Revenue and Customs (HMRC) would prefer to treat everyone as employees, meaning that they would receive the employers NI.  Also, it avoids the scenario of income not being declared, and the tax would be collected under PAYE as opposed to in arrears under self assessment.

There are obviously some people who are definitely employed, some who are definitely self employed, and some who fall into the grey area between.

In order to try and establish whether someone is employed or self employed, there are certain areas which need considering:

Equipment
It is more normal for an employer to provide tools and equipment for an employee to do their job, whereas someone who is self employed would be expected to supply the equipment themselves.

Time and place
An employee may be expected to be in a particular location for a particular time dictated by the employer.  Someone who is self employed may have the flexibility of doing the work as and when they prefer.

Financial risk
Generally, an employee is paid to do a job with little prospect of financial risk.  However, someone who is self employed should have an element of financial risk.  They may be paid a set amount to do some work, which may be the same regardless of how long the job takes.

Right of substitution
This is the undertaking to provide a service regardless of who may be doing the work - a situation which wouldn't happen with an employee.

This is obviously a subjective area; generally speaking, the more boxes which can be ticked, the more likely it is that someone is self employed, although it usually depends upon the circumstances of the individual case.  Additionally, the areas highlighted above should be genuine and documented.  However, simply having a contract from the 'employer' which says "Joe Bloggs is self employed and is responsible for his own taxes" is not sufficient.

If you need help establishing whether someone - a helper, or yourself - is employed or self employed, please contact us.