Polish worker – employed or self-employed?!

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    I have a case where the claimant is a Polish guy who has stated that he is self-employed, and on the face of it is. However, after looking into it in more detail, it appears that he works via a recruitment agency, but is paid through an off shore payroll company based in Gibraltar, and on their website they quite happily advertise the service they offer. They explain that UK tax laws are strict in that self-employed individuals are generally not allowed to work directly for a employers and declare themselves as self-employed, and that what they do is act as the limited company who invoices the agency.

    Presumably, once the money is paid out of the UK the Gibraltain(?!) laws then come into play, and the contractor then gets paid the full amount received from the agency minus the off shore companies fee. They state that this allows the individual to declare themselves as self employed so that they avoid paying employers NI, pay less tax and ‘ees NI, and to claim expenses, and clearly state that it’s to circumvent IR35.

    The issue I have here is that, whilst my claimant may have done this for tax purposes, as a second bonus it appears to get round the problem of him having to have his employment registered with the Home Offices worker reg scheme. However, I believe it is effectively disguised employment, and he should still be registered with the Home Office worker reg scheme.

    Has anyone come across such a scheme? I’ve heard of plenty of tax avoidance schemes for contractors working through limited companies, which the government have targeted and closed loopholes, but I’ve never know of a legitimate scheme to allow someone to declare themselves as self employed in this way!

    The HM Revenue & Customs website offer a little advice, and state that there’s no statutory definition of a contract of service (self-employed, independant contractor) or contract of service (employees), but I believe this guy has a contrat of service and is clearly an employee. He gets a weekly wage based on a fixed hourly wage x the amount of hours worked, appears to work under supervision of a manager, and says that he is ‘temporary cover for someone else’.

    Normally he would be treated and paid as an employee and taxed under PAYE, but because of this company, whether legal or not, he is not taxed under PAYE and has been able to registered as self-employed with the taxman.

    Any opinions on this? If he’s is effectively a disguised employee, I think we should be treating him as an employee, and he should therefore have his employment registered. But then would the Home Office register it as employment or tell him he’s self-employed so doesn’t need to bother?!



    Anyone with any advice on this?


    Just a question.
    Does he pay class 2 and 4 NI contributions, as if this is the case, then HMRC have accepted he is self-employed. If this is the case, you may find it difficult to argue a contrary point of view.


    Not that I’m aware of. He’s not provided any self-employed accounts, just payslips showing the full gross being paid ot him after the payroll company have taken off their fee.

    Looking on the HMRC website, they determine whether a person is self-employed or an employed earner by determining whether they work under a contract of service (employees) or under a contract for services (self-emp, independant contractor). They also state that there’s no statutory definition of a contract of service or of a contract for services.

    The HB regs define an employed earner as prescribed in reg 2(1)(a) of the Act. 2(1)(a) defines an ’employed earner’ as ‘ a person who is gainfully employed in Great Britain either under a contract of service, so (as far as I can see anyway) there doesn’t seem to be anything to state it should be based on the type of NI paid.

    Using the HMRC’s questioning for establishing which I think this guy works under a contract of service, and it therefore effectively an employed earner. Does anyone else have an opinion on this?

    I’ve written to him for more specific details of the employment, employer, agency, etc, so that should make it clearer, but any thoughts would be appreciated in the meantime….!


    Just to update on this one, I attended the hearing and the judge decided that for the period he was working for an agency through this payroll company he was employed, and [i:f91dc3b3aa]not[/i:f91dc3b3aa] self-employed, and therefore not entitled to benefit. He decided that from a later date where he had done some self-employed work, he was self-employed, although there was a short period where the two overlapped, so for that period he was deemed self-emp and therefore entitled, although both his employed earnings and self-emp earnings had to be taken in consideration (which nilled him out anyway).

    It was an interesting one, the judge asked him lots of questions about the work, type of work, type of site, other people working there, equipment, etc and decided that as it was employment and not self-employment, it needed to be registered with the HO.

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