Contractor being considered an employee

Ray Palmer

A friend of mine just recently changed accountants and he was telling me they warned he maybe considered an employee. He set up a limited company ad got a contract through an agent. Kept getting another contract with the same people as there was more work.

His accountant is saying that because he has stayed with the same company he could be considered an employee. Does this sound right to others?

Stheno

Ray Palmer wrote: »

A friend of mine just recently changed accountants and he was telling me they warned he maybe considered an employee. He set up a limited company ad got a contract through an agent. Kept getting another contract with the same people as there was more work.

His accountant is saying that because he has stayed with the same company he could be considered an employee. Does this sound right to others?

Yes do a google on it revenue have criteria they use to define contractor vs employee

Ray Palmer

Stheno wrote: »

Yes do a google on it revenue have criteria they use to define contractor vs employee

It seems pretty clear if he is dealing with his own taxes and has a company he is self employed so that is why it doesn't make sense to me.

Stheno

Ray Palmer wrote: »

It seems pretty clear if he is dealing with his own taxes and has a company he is self employed so that is why it doesn't make sense to me.

http://www.revenue.ie/en/employing-people/becoming-an-employer-and-ongoing-obligations/guide-to-pay-as-you-earn-paye/determining-the-employment-status-of-an-individual.aspx#

wordofwarning

Ray Palmer wrote: »

It seems pretty clear if he is dealing with his own taxes and has a company he is self employed so that is why it doesn't make sense to me.

Revenue seems to differ. They are cracking down on professionals who are setting up/using umbrella companies to be considered contractors rather than employees. They have found firms where entire offices of accountants 'were self-employed'.

barneystinson

Stheno wrote: »

http://www.revenue.ie/en/employing-people/becoming-an-employer-and-ongoing-obligations/guide-to-pay-as-you-earn-paye/determining-the-employment-status-of-an-individual.aspx#

In the case described by the OP, the individual is an employee of their own company (or the umbrella company).

To my knowledge Revenue don't ever try to set aside or look through the existence of an intermediary company. They can't, because if Barneystinson Ltd enters into a contract with a 3rd party to provide the services of Barney to them, then that is a valid legal contractual arrangement that can't be ignored.

Ray Palmer

wordofwarning wrote: »

Revenue seems to differ. They are cracking down on professionals who are setting up/using umbrella companies to be considered contractors rather than employees. They have found firms where entire offices of accountants 'were self-employed'.

I am not seeing how they differ. The person does own their own company and deals with their own taxes which is on the checklist for being self employed.

Lockedout2

Ray Palmer wrote: »

I am not seeing how they differ. The person does own their own company and deals with their own taxes which is on the checklist for being self employed.

It is fundamentally different a sole trader deals with their own taxes but Revenue can and will set aside the "self employed" status and deem the person an employee.

If that person has a company between themselves and the client Revenue can't deem them and employee of the client.

Ray Palmer

Lockedout2 wrote: »

It is fundamentally different a sole trader deals with their own taxes but Revenue can and will set aside the "self employed" status and deem the person an employee.

If that person has a company between themselves and the client Revenue can't deem them and employee of the client.

It is a limited company working in a client site for a company that hired them through an agent.So actually 4 companies involved
The accountant was suggesting they could be considered as an employee of the agency.
According to the revenue website different departments can see it differently

barneystinson

Ray Palmer wrote: »

It is a limited company working in a client site for a company that hired them through an agent.So actually 4 companies involved
The accountant was suggesting they could be considered as an employee of the agency.
According to the revenue website different departments can see it differently

Point me to where Revenue say this please?

Ray Palmer

barneystinson wrote: »

Point me to where Revenue say this please?

http://www.revenue.ie/en/self-assessment-and-self-employment/documents/code-of-practice-on-employment-status.pdf

Page 5

barneystinson

Ray Palmer wrote: »

http://www.revenue.ie/en/self-assessment-and-self-employment/documents/code-of-practice-on-employment-status.pdf

Page 5

Nope, nothing there supporting what you've suggested. I think you're reading it wrong or not understanding something.

Edit: just to be clear I'm talking about your overarching point, that Revenue could / would look through a company, to impose an employment relationship where legally there isn't one.

thegolfer

There was the Contractors project conducted by Revenue a few years back, which looked at workers in specific sectors.

Last year I think Welfare looked for submissions to their Consultation paper on the use of self-employment and intermediary type structures.

It is a possibility that later down the line a review of these setups may be undertaken\challenged or an agreement for a wind down possibly.

The main issue was the avoidance of employers PRSI on the payments to the company when in an employee setup would yield PRSI to the exchequer.

For now eh setup of your friend may be okay but I have advised other clients of the same detail.

However the main issue is a national one, there may be many thousands of workers like you have suggested, and a phase-out of such arrangements may be implemented.

Similar instances in the UK with the Personal Service Companies and workers for the BBC.

https://www.welfare.ie/en/downloads/PSC%20Consultation%20Paper%20final.pdf

Ray Palmer

barneystinson wrote: »

Nope, nothing there supporting what you've suggested. I think you're reading it wrong or not understanding something.

Edit: just to be clear I'm talking about your overarching point, that Revenue could / would look through a company, to impose an employment relationship where legally there isn't one.

I'm glad you edited this because you stated it as absolute fact. I think page 5 certainly says revenue are not the only one that can decide it but if they do before a different judgement was made it would stick and vice versa.

In this case the person has had a company and worked for different agents and companies and has just stayed longer in one place would make it difficult to state the relationship. It would be different if the person set-up a company and then only ever work for one company.

What is also strange is I know for a fact people working in revenue as contractor have been there for a number of years so they have people within their own organisation working like this.

If it is about employee prsi it is a bit silly as contractors get paid much more and already pay more tax that they wouldn't get if employees. I know the first year I went contracting I paid the entire wage I made the year before in tax alone.

The entire public service relies on IT contractors for their software.

towger

http://www.revenue.ie/en/employing-people/becoming-an-employer-and-ongoing-obligations/guide-to-pay-as-you-earn-paye/determining-the-employment-status-of-an-individual.aspx

Clazbeag

They also look at things like we're you invited to staff parties, staff away days, staff volunteering days, staff discounts etc if any of those are applicable . IE do you get the perks of an employee whilst saying you're a contractor. If you're a contractor you shouldn't be getting them.

barneystinson

Ray Palmer wrote: »

I'm glad you edited this because you stated it as absolute fact. I think page 5 certainly says revenue are not the only one that can decide it but if they do before a different judgement was made it would stick and vice versa.

In this case the person has had a company and worked for different agents and companies and has just stayed longer in one place would make it difficult to state the relationship. It would be different if the person set-up a company and then only ever work for one company.

What is also strange is I know for a fact people working in revenue as contractor have been there for a number of years so they have people within their own organisation working like this.

If it is about employee prsi it is a bit silly as contractors get paid much more and already pay more tax that they wouldn't get if employees. I know the first year I went contracting I paid the entire wage I made the year before in tax alone.

The entire public service relies on IT contractors for their software.

Ok I'll try again. That document is simply not relevant to the issue at hand here. A contractor of the type you are discussing, IS AN EMPLOYEE. No-one, on either their own side or Revenue's, are suggesting otherwise.

The question is WHOSE EMPLOYEE they are.

Revenue explicitly stated that in the course of their national project into the sector they were NOT intending to challenge the nature of individuals' employments.

Re: the tax thing, the issue that Revenue were concerned with tackling was the situation whereby people contracting were paying a much lower proportion of their gross hourly / daily rate in tax, usually by virtue of incorrectly claiming tax free travel & subsistence and/or other expenses from their own company before drawing a modest salary.

Ray Palmer

barneystinson wrote: »

Ok I'll try again. That document is simply not relevant to the issue at hand here. A contractor of the type you are discussing, IS AN EMPLOYEE. No-one, on either their own side or Revenue's, are suggesting otherwise.

I'll try again so. How are you determining he is an employee?

On the determination of self employed that are definite
Owns there own business
Assume responsibility for for the business
Provide materials for the job
Provide equipment for the job
Has a fixed place of business for equipment to be stored
Controls hours of work in filling job obligations

The others could be argued but there is one exception
Free to hire somebody else to do the job. Certain jobs that just isn't possible ever so it seems strange on a number of levels

So why are you stating none of that matters and what is the absolute part that makes them an employee when they fill so many of the markers for a self employed person? I am just trying to understand you and it appears you are just stating a view with no explanation.

Ray Palmer

Clazbeag wrote: »

They also look at things like we're you invited to staff parties, staff away days, staff volunteering days, staff discounts etc if any of those are applicable . IE do you get the perks of an employee whilst saying you're a contractor. If you're a contractor you shouldn't be getting them.

No such perks, I even pay for my own training on occasions and have recommended their own staff do it too. Don't think my friend ever did pay training but it would be another indicator of self employment

barneystinson

Ray Palmer wrote: »

I'll try again so. How are you determining he is an employee?

On the determination of self employed that are definite
Owns there own business
Assume responsibility for for the business
Provide materials for the job
Provide equipment for the job
Has a fixed place of business for equipment to be stored
Controls hours of work in filling job obligations

The others could be argued but there is one exception
Free to hire somebody else to do the job. Certain jobs that just isn't possible ever so it seems strange on a number of levels

So why are you stating none of that matters and what is the absolute part that makes them an employee when they fill so many of the markers for a self employed person? I am just trying to understand you and it appears you are just stating a view with no explanation.

Jesus wept.

What I am trying to tell you, but it doesn't seem to be sinking in, is that a person who is contracting THROUGH A LIMITED COMPANY, which HAS A LEGALLY BINDING CONTRACT to provide services to a third party, is AN EMPLOYEE OF THEIR OWN COMPANY. That's it, simple as, end of. There's no provision in law, in Ireland*, to set aside or look through the existence of such a company.

The document you keep harping on about is used to determine whether an individual is an employee or a contractor in the situation where they are providing their labour / services directly as an individual.

Please take a few deep breaths, clear your mind, and read this a few times. It cannot be explained any more simply than this without me drawing you a diagram involving a stick man.

*The U.K. has different legislation which appears to be contributing to some of the confusion here.

Ray Palmer

barneystinson wrote: »

Jesus wept.

What I am trying to tell you, but it doesn't seem to be sinking in, is that a person who is contracting THROUGH A LIMITED COMPANY, which HAS A LEGALLY BINDING CONTRACT to provide services to a third party, is AN EMPLOYEE OF THEIR OWN COMPANY. That's it, simple as, end of. There's no provision in law, in Ireland*, to set aside or look through the existence of such a company.

The document you keep harping on about is used to determine whether an individual is an employee or a contractor in the situation where they are providing their labour / services directly as an individual.

Please take a few deep breaths, clear your mind, and read this a few times. It cannot be explained any more simply than this without me drawing you a diagram involving a stick man.

*The U.K. has different legislation which appears to be contributing to some of the confusion here.

I see you have no manners.

You have missed the point and have been not helpful. I understand your particular view point now. Unless you can say your particular view point holds some merit you are just a shouter. The basis for what the accountant said wasn't the nature of working for the limited company but that it was because they had contracted to the same company for a while.

You seemed to miss that part and substituted a different narrative. That is why you made no sense in what you were saying. Your stance is he is an employee no matter what what but the accountant is saying he maybe considered an employee by revenue because he got paid by the same company for over 2 years. So I am ignoring your stance because that was never the question.

The_Chap

The Ltd company have been paid by the same company for two years, not the individual

Big difference

barneystinson

Ray Palmer wrote: »

I see you have no manners.

You have missed the point and have been not helpful. I understand your particular view point now. Unless you can say your particular view point holds some merit you are just a shouter. The basis for what the accountant said wasn't the nature of working for the limited company but that it was because they had contracted to the same company for a while.

You seemed to miss that part and substituted a different narrative. That is why you made no sense in what you were saying. Your stance is he is an employee no matter what what but the accountant is saying he maybe considered an employee by revenue because he got paid by the same company for over 2 years. So I am ignoring your stance because that was never the question.

Apologies for the shoutiness, this isn't an ideal medium for discussing this issue.

You seem to think his status up to now has been something other than an employee paying tax through PAYE - is that right? If so, what do you think he's been treated as, for tax purposes?

I assure you, I haven't missed, overlooked or misunderstood any part of your post. I understand exactly what you're saying the accountant said, and the only reason he could think that is if he's more used to how contractors (contracting through the medium of a Ltd company) are treated in the U.K. under legislation there. That is a piece of legislation, which has no equivalent in Irish law. It was introduced to try to impose a "look through" on contractor/end user relationships in situations where a contractor remains working with a single customer for long periods (generally 2 years plus).

Why was it introduced? To try to impose employment status and all the obligations (not just payroll taxes) in situations where intermediary companies were being used to disguise what would otherwise be a traditional employment.

The fact that the UK had to introduce a piece of legislation to attempt to look through companies and their contractual relationships, is prima facie evidence of the fact that without such legislation, there is no mechanism to ignore or set aside the legal relationship, which the_Chap has quite succinctly described above as one company paying another company.

Ireland has no such legislation.

Irish Revenue are on record as saying they have no intention of trying to take that approach (because they can't, because there's no basis in law to do so).

(I hope I'm being a bit more clear now that the toddler has gone to bed...!)

barneystinson

The main reason for a lot of the issues, and liabilities, that were identified by Revenue in auditing Irish-based contractors, is that the taxpayers (understandably) and their tax advisors (less so) didn't appreciate that the legislation relating to the claiming of tax free travel & subsistence expenses from your employer (which in the case of a contractor is your own Ltd co / umbrella company), differ substantially between the U.K. and Ireland.

In the U.K. as a contractor you can claim t&s for up to 2 years at a particular site, or up to the point that it becomes likely that you will be there for >2 years. This was a change to the previous legislation in relation to expenses incurred in employment, which had been in place for many many decades. In Ireland the test for entitlement to tax free t&s never changed, and hence it is fundamentally different between here and the uk since the late 1990's. As contracting became more common earlier in the U.K. than here, the practices prevailing in the U.K. were implemented here with the main players failing to appreciate (or conveniently overlooking) the fact that these fundamental differences meant that what would be recognised as a legitimate expense in the U.K. is considered part of an individual's commute in Ireland.

If you're a contractor living 50miles from a contract site and driving 20,000 miles + per annum, that's over 10k in mileage and maybe 7k in subsistence (figures based on Irish civil service t&s rates) that you could claim tax free if you worked in the U.K. via a U.K. vehicle, but which are in no way reimbursable tax free in Ireland. If you (or let's be honest, your accountant) don't realise this fact, you are exposed to a big tax liability, plus interest, plus a penalty.

cnoc

On a side note, where does that leave a number of people working in RTE. A number of people there have set-up their own companies, and their salaries are paid in to their respective companies. These people have been with RTE for a long number of years.

barneystinson

cnoc wrote: »

On a side note, where does that leave a number of people working in RTE. A number of people there have set-up their own companies, and their salaries are paid in to their respective companies. These people have been with RTE for a long number of years.

It leaves them in Ireland, as directors and employees of their own companies. If they want to take money out of the company they'll have to pay PAYE on it no different than if they were being paid it directly by RTE (or else draw it as a dividend which would be even less tax efficient). There is an advantage from a pension point of view alright, but if they're a long term RTE head they'd have been in line for a magnificent defined benefit pension anyway if they'd stayed on the books as an employee.