Employee treated as self-employed - white space

[Incredulum]

An individual is quite clearly an employee under any test under UK law (no other clients, full-time job, no right to substitution etc. etc.) but has been provided with an employment contract that has 'self-employment' inserted every time the draft contract had 'employment' in it. (Changing your tax status is dead easy, right?)

Needless to say the employer is not operating PAYE. That I suppose is their problem.

However, the individual is consequently paying less NI than they would pay under an employment contract. What happens to this NI underpayment if HMRC reclassify the individual as employed? Should the individual use the white space to disclose the fact that they are being paid on a self-employed basis when in fact that basis is incorrect?

Thanks

[darthblingbling]

Likely they'd go after the employer for recovery.

[pawncob]

https://www.guildhubservice.co.uk/resource-article/employed-or-self-employed-employment-status/

[Incredulum]

Thanks.

The link is very clear on the income tax/PAYE position - but that's easy as the income tax amount will be the same.

It is much less clear on the National Insurance; I think that by saying "It should be possible to get relief for the class 2 and 4 National Insurances against the employee’s National Insurance liability" it suggests that the employee will have an additional liability.

But I therefore ask again; should the worker white-space the fact that he disagrees with the employer's categorisation.

[pawncob]

Yes. To cover his backside. What's he got to lose?

[Incredulum]

What’s he got to lose?

His job? There are a dozen people on the non-payroll, the non-employer will likely sack him as - if there is an investigation - then it will go back years and the tax and penalties will be seven figures. Which I agree is a jolly good reason for disclosing!

If you were acting as the worker’s tax agent would you feel the need to whistleblow?

[pawncob]

Well it's going to come out at some stage.
Not sure how HMRC would view his non disclosure when it happens He's signing his return knowing it's incorrect.

[bd6759]

It’s called self assessment for a reason. If the individual is an employee he should complete the employment pages of the tax return.

He can give himself credit for the PAYE tax that his employer ought to have deducted and end up with no tax liability.

It’s then up to HMRC to recover the PAYE from the employer: Tax, EE NIC and ER NIC. It’s not just the individual that hasn’t paid the right NIC: the employer has avoided NIC as well.