Guest blog by Katherine Connolly
of Keeping HR Simple
Last week I posted a blog on the accounting implications when your boss asks you to go self employed.
Today Katherine Connolly of www.keepinghrsimple.co.uk has kindly agreed to look at your rights as an employee if …
Your boss has asks you to go self-employed
Ask why
That’s the very first thing you should do because you need to understand the reasons behind the request. Often it may be the case that your employer needs to save money and the Employers National Insurance he or she pays for you is one area where money could be saved.
Understand your options
There are three ways to respond to this request. The first is to agree, the second to disagree and the third is to propose an alternative solution (once you’ve understood the reason behind the request that is).
Agree
Before you agree to go self-employed, you’ve got to understand what that means and what impact that will have on your personal circumstances and most importantly, your finances. There are some key indicators HMRC will apply in order to determine whether or not you are truly self-employed:
- You can decide how & when to provide the assigned services
- You make a profit or loss
- A fixed price is paid to complete the services regardless of time taken
- You can hire others to do the work at their own cost
Or if most of the following applies then you may still be considered as being self employed:
- You provide the ‘tools’ needed to complete the work and use your own funds for any costs incurred to complete the work
- Any issues with the services delivered have to be rectified at your cost
Disagree
You may not want to change your employment status at your employer’s whim. However, before you refuse the request, you should understand the consequences of that decision. It may mean that your employer will consider redundancy as an option so it’s worth knowing what the alternatives are in your employer’s mind.
Propose an alternative
Having the information in advance means that you know why your boss has made the request and what he or she is considering instead if you refuse. If you can propose an alternative which would meet your employer’s needs but ensure that
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It may have been covered in the earlier post, but this could put the former employee in a very difficult position with HMRC.
Yes Alsion – it was covered in the blog last week here …
http://www.cheapaccounting.co.uk/blog/index.php/have-you-been-asked-by-your-boss-to-go-self-employed/
From the employee’s perspective, there are some other things to be borne in mind.
Firstly, they have to register as self-employed with HMRC, and there are fines for failing to do so.
Secondly, they will no longer have tax deducted via the payroll, but need to put aside a tax reserve so they can pay tax under self-assessment.
Thirdly, they’ll need to prepare and file tax returns, and will need to prepare accounts to support the entries in the return – so greater discipline on record-keeping is needed than is the case for an employee.
Fourthly, the period for which they have to retain records as a self-employed person is markedly longer than for someone who doesn’t have their own business.
One other thing to note is that it’s really not up to the employee to check whether they are genuinely self-employed. That is the risk the employer takes.
Thank you for the comment Jeremy but I find it a bit of a contraction to say that an employee has to register as self employed
Aargh, Miss Pedant!
On the assumption that the now ex-employee has gone down the self-employed route, they will need to register with HMRC. Similarly in the last line of my comment, this should be read as “the former employee who now claims to be self-employed”…
Thanks Jeremy
My view is that the employee needs to think about this VERY carefully before they agree to give up their employment rights
A former boss of mine put so much pressure to become self employed to save money. She absolutely tried everything she could to try and make us cave in but we all refused. A month later she had no employees left we either resigned or were sacked believe it or not for not going along with her plans! I do not regret it at all, after all i’m a recruitment consultant and you don’t often find them self employed!