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You can't have it both ways
Well, sometimes you can. It is generally true that self-employed people get a better deal for tax than employees do - so it's common for employers and workers to agree that their relationship is something less than employment, and not apply PAYE. The trouble is that the Revenue may object, and then you find that employment is not a matter of agreement between the parties - it's a matter of how you behave, and what the working relationship is. If you behaved as employer and employee in practice, then PAYE should have been
deducted, and the settlement is expensive for the employer.
The other problem for the worker is that employees have far more rights than self-employed contractors (who have hardly any). Sometimes, people who have been treated as self-employed for tax are dismissed, and they then claim that they were really employees so they can have their statutory rights to compensation for unfair dismissal or redundancy. Often, they win, because on the basis of the relationship they were really employees - possibly giving their employer a further problem with the Revenue as well.
In a recent case, a worker claimed unfair dismissal, in spite of having been dealt with as a consultant for over 12 years. It was clear that, on the bare facts, he should have been an employee. However, his tax treatment had been his own idea, and he had been prepared to lie about the relationship when the authorities investigated it. Because of this, the Employment Appeals Tribunal held that he could not be entitled to compensation, because his employment contract was 'tainted with illegality'.
It's a reminder that many plans - particularly those which are on the borderlines of the law - have a downside which may not be appreciated until much later.
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The case is Soteriou v Ultrachem, Solvo Ltd and Ultracolour Ltd, and it is written up in Accountancy, Feburary 2003 p94.
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