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bigduckontax, Accountant
Category: Tax
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Hi there, Ive just been offered a Contract for Services

Customer Question

Hi there,

I've just been offered a 'Contract for Services' by a company, but the contract appears to be worded as if it's a contract of employment. They are asking me to invoice them monthly, which again implies that this is a freelance agreement.

For example, it includes things such as holiday entitlement, sick pay, work absence, place of work, grievance proceeders, hours of work etc.

Surely these aren't relevant in a freelance agreement.

Here is a bit of company background info:

- They are startup
- Recently acquired 150k investment which is why they're able to contact me
- It may be that they are trying to avoid paying NI, could you clarify?

Could this company at some point be investigated by the Inland Revenue or the DSS or Customs & Excise?

What are the consequences for the company and what are the consequences for me as the contractor in pseudo employment when I only have one client?

Thanks,
Josh
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello Josh, I'm Keith and happy to help you with your question.

The fundamental difference between an employee and a contractor is that an employee can be told what to do and how to do it whereas a contractor can be told what to do but not how to do it! Again an employee can only have one place of employment, any requirement to work elsewhere becomes detached duty. A contractor may work anywhere required.

My initial reaction is that a start up company has just gone to a legal contract stationer and picked up the wrong pro forma!

If you are invoicing monthly as a contractor their involvement in NI would be nil in any event. The entire NI system would devolve onto you under self employment rules. Of course depending on the volume of work overall undertaken by you you might have to register for VAT. No skin off your nose, you would merely add VAT to your invoice. What the company does is entirely up to them.

The method of payment proposed is so common that there is little likelihood of any investigation by HMRC (Inland Revenue and Customs ans Excise were merged several years ago) and even less by other government authorities.

My advice to you would be not under any circumstances sign this pseudo contract of employment, pointing out that by billing monthly as a contractor such restrictions are inappropriate. I suspect that you may be dealing with ignorance, or even worse half knowledge. You will probably be aware that if you were an employee there is a legal requirement for you to be given a contract of employment within 6 weeks of being taken on. I suspect someone has got the whole thing round their necks and a few quiet words as to the realities of the situation may be appropriate.

I do hope I have been some help to you in this matter.
Customer: replied 2 years ago.

Hi Keith,


 


Thanks for this. Basically I'm happy either way, whether this be a contract of employment or a freelance contract.


 


What I want to understand is that by signing this am I liable if anything goes wrong and they were to be checked out by HMRC / DSS. Or does the liability lie with the company.


 


If so, what are the consequences? Is there a penalty? Are they black-listed etc?


 


Thanks,


Josh


 


 

Expert:  bigduckontax replied 2 years ago.
If you sign as a contract of employment they must remunerate you through PAYE as an employee. If you are a contractor then they should meet your invoices.

Any liability would lie with the company. An investigation by HMRC is relatively rare and usually only undertaken if it is thought tax evasion is present. You personally should not have any involvement whatsoever in any such investigation. HMRC have no powers to blacklist, but may well view any future activities of the company with a very jaundiced eye. Penalties may be imposed on the company in certain circumstances eg failing to file returns on time, but not you in the event of infringements.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3096
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.
Customer: replied 2 years ago.

Thanks very much.

Expert:  bigduckontax replied 2 years ago.
Please to be of assistance.
Expert:  Sam replied 2 years ago.
Hi JOshI am sorry to intervene - however my colleague seems to be forgetting about the basic importance of employment status law, and the fact that this will be your only client, then the way in which you are engaged needs to be looked at in more depth, so whilst you do need to establish with this company, the contract they have asked you to sign, may in fact be correct, that this should be one of employment.Employment status is taken very seriously by HMRC and I have added a link here regarding this point for you to consider the way in which you are to be engaged http://www.hmrc.gov.uk/payerti/employee-starting/status.htmDo feel free to ask any follow up questionsThanksSam
Expert:  bigduckontax replied 2 years ago.
Another unprofessional over post which is quite redundant in the light of the question and the answer if carefully perused.
Expert:  Sam replied 2 years ago.
Hi Josh

It would be appreciated if you could allow me to assist you further - as I would hate for you to find yourself owing HMRC as you were aware of the position you entered into -

So please do take this issue up with the company with whom you are to be engaged.

Thanks

Sam

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