Commission-only employed or Self-employed? Advice please

[womble2]

I have started working for a friend as a part time Mortgage Consultant. I agreed I would be paid commission only and would receive 25% of everything I earned, in return for him providing leads, admin support, laptop, phone etc. I assumed I was employed (I am yet to receive my contract) but it has been suggested to me it would be better to be self employed, as the benefits would far outway those of being employed without a regular basic wage.

I expect my earnings to be anywhere between £4000 and £12000 depending on how much work I take on.

Any suggestions or comments please? Thank you

[Lambs]

This is, has been, and probably always will be, a contentious area. The Revenue always opt for employment, because of the higher NIC yield, and the fact that it is easier to claim expenses when self employed, so profits and therefore Income Tax yield are lower. Of course for you, the converse is likely to be true, i.e. you'd have a lower tax/NIC bill if self employed. Depending on the most recent hearings before the General Commissioners, different key factors are "flavour of the month." Prima facie, two factors are evident: your friend is providing you with everything you need in order to do your work, and that indicates employment. On the other hand, there is an element of financial risk for you here, which is not normally applicable to employees - i.e., you don't earn at an hourly rate, and can earn absolutely nothing even if you do a lot of work. (In theory). A few months ago, people would have told you "Substitution's What You Need," as we had a spate of cases where the decision turned in favour of self employment on the basis that the individual was entitled to provide a substitute to do his work, e.g. if he fell ill, or just couldn't be bothered. However, a case was heard more recently where the right of substitution was present, but the Commissioners felt that on the facts of that case, would never apply - the taxpayer was found to be employed.

I suggest you go to http://www.inlandrevenue.gov.uk/pdfs/ir56.pdf
which gives the Revenue's version of the main points. Avoid the scary photo at the beginning: it felt much safer when they were all just pink.

It would also help if you worked as an agent for more than one person, and could consider any items such as your car, home pc, home 'phone, etc., that you could use for business purposes. The Revenue used to say that if all the tools of the trade (so to speak) were provided for you, then you were definitely employed, but there was a case, Lorrimer v Hall I think, where they lost that point. (He was a vision mixer in the tv industry and the companies provided all the specialist equipment, but it was agreed that his expertise, and the number of short engagements he had with various companies were in the nature of self-employment, and he won, much to the chagrin of the Inland Revenue). Phew, first post, got quite carried away!

'Course, I might suggest that you set up a limited company and benefit from the more favourable tax treatment available using dividends instead of salary, but you'd walk straight into the unstoppable force that is commonly referred to as IR35, and is summarised in the Revenue's IR175 booklet. I shouldn't recommend it unless you can do work for more than one source of leads.

However, after banging on about how great being self-employed is for tax/NI purposes, we should step back a bit and look at the broader picture: employees tend to have more rights, e.g. to paid hols, to sue for unfair dismissal, etc; if they are ill (or have a child) then state support is better. Strictly, the person paying you is supposed to decide if you are employed or self employed, and it's in his or her best interests to do so, because if the Revenue decide you were employed all along, he or she will be responsible for (at least) the difference between the tax and NI you've paid presuming you were self-employed, and the tax and NI he or she should have paid as your employer. If this is your only source of income, then you should also consider applying for the Tax Credits: even if they give you a nil award at the beginning, if it doesn't work out as well as hoped, you could get a little cash, especially if you have children.

Good Luck!

[womble2]

Whoa! Scary Photo!

Thanks for your advice, it is much appreciated!