PAYE corrections: tax advisers as spectators

It might be thought that the audit of the PAYE system which has brought to light the overpayments and underpayments of tax under PAYE would bring in work for accountants and tax practitioners. This is not going to happen.

Overpayments of tax will be refunded by HMRC automatically. Those who have underpaid will fall into two categories. The first will be the people who knew their Codings were likely to be incorrect because they actually looked at them when the brown envelopes came through the post. Any anomalies will be because the benefit figures were wrong or the tax rates or allowances were wrong because there was a second job or a change in circumstances. It is likely that those who did not correct Codings which were wrong hoped that HMRC would not notice.

The second category will be those ostriches who never looked at their Codings. They will still not look; they will shrug their shoulders when they get notification of an underpayment.

Neither category of taxpayer will want to appoint an agent to manage the situation. It would be adding insult to injury to have to pay someone a fee when they already have to cough up some more tax. Anyway, in general it would not be worthwhile for agents to take anyone on as a client to look at their coding history. The fees which could be charged would not be sufficient to cover an agent's costs. Most of the people affected would not have a Universal Tax Reference (UTR) as they would not be filling in Tax Returns. That would mean that authorisation would have to be done with a paper application which would probably take three months for HMRC to process, by which time the Codings issue would be water under the bridge,

None of we agents' existing clients will have a problem. They will have had Tax Returns completed for them. Any overpayment or underpayment will have come out in the wash of Self Assessment.

So we can only look on, shake our heads, wonder at the noise and know that those who have underpaid probably knew there was an issue as they hid their heads in the sand.

Weighing up whether your workers are employed or self-employed

There was an interesting tax case before the First Tier Tax Tribunal in respect of which the decision was announced in February. It was much reported in the tax press and tax circles, but also in the national broadsheets. The case involved a very well known company, Weight Watchers Limited, which is a subsidiary of Weight Watchers International.

The case was not remarkable in the sense that many people treated as self-employed have subsequently been found to be employed, and it was unremarkable also in that the usual tests were applied, which are in respect of the amount of control the provider of work has over its workers. The remarkable element is that Weight Watchers have gone so long in the UK without HMRC having mounted a challenge. I suppose they would have been taking advice from their accountants over a number of years.

In this case the tribunal determined that there were a number of indicators that WW leaders, those who run the classes around the country, were employees and that the wordings and requirements of their contracts made them so. These included:

1.WW could replace a leader if they did not feel the leader was representing WW correctly in a contract which existed between the company and the member, not between the leader and the member.

2.The Company decided on the timings and places of meetings indicating a degree of control.

3.Most of the guidance to help the leader hold successful meetings given by WW was 'mandatory rather than aspirational'.

4.WW required certain targets of the leaders including maintaining their weight within their 'gold goal weights'.

5.The takings collected in meetings were insured by Company and had to be paid over within 24 hours of being collected for them.

There are other rules concerning the taking of holidays, regular supervisory observers being sent to classes by the company and so on, which appear to indicate that the company is very much “hands-on” when it comes to controlling their workers in the field.

To be self-employed and to borrow from HMRC's booklet ES/FS2, one needs to ask:

• Can the worker hire someone to do the work, or take on helpers at their own expense?

• Can the worker decide where to provide the services of the job, when to work, how to work and what to do?

• Can the worker make a loss as well as a profit?

• Does the worker agree to do a job for a fixed price regardless of how long the job may take?

I have no argument with these and if a worker does not satisfy these basic principles then he or she is probably an employee.

Of course no two cases are exactly the same. The Company is going to appeal against the tribunal decision and they may make a good case for all I know, but it does indicate for every business that before deciding a worker is self-employed they need to look at the facts on their merits.

As a result of the defeat of the company by HM Revenue & Customs, £23M has been provided in the company accounts as a liability which may have to be met, and this would be in respect of the PAYE tax and Employer's and Employee's National Insurance Contributions over a number of years for which they may now find themselves responsible. The possible tax hit has been shown as $37M in the international group's accounts.

I am not sure whether this sum is related to the full PAYE liability or if the Company is assuming that they can take into account tax already self-assessed and paid by their workers on their hitherto presumed self-employed basis. Guidance from HMRC following a fairly recent case, Demibourne Ltd v HMRC SpC 486, says HMRC will effectively allow credit for such tax assessed on a self-employed basis in these cases. Where the worker has not paid tax self-assessed, the Company will not have a remedy.

We await the appeal with interest, but remember that if you tell a worker when to turn up and how to do the job and that person has to ask for time off and holidays, he or she is probably an employee, whether an engineer, a bar person or an office cleaner.

© Jon Stow 2010