The NICs liability for a self employed is lower than for an employed individual with profits of an equivalent amount. So, there is an incentive to claim to be self-employed rather than employed.
Are you employed or self-employed?
This can be a complex area and there may be many situations where the answer is not that clear.
If the following factors apply to you, it is possible that you are employed rather than self-employed:
- the ’employer’ is obliged to offer work and the ’employee’ is obliged to accept it
- a ‘master/servant’ relationship exists
- the job performed is an integral part of the business
- there is no financial risk for the ’employee’
Please seek professional advice as early as possible and in any case prior to obtaining a written ruling from HMRC.
When HMRC discovers that someone has been wrongly treated as self-employed, they will re-categorise them as employees. In these circumstances, HMRC are likely to seek to recover arrears of NI contributions from the employer.
Enforcement, penalties and interest
In order to identify and collect arrears of NICs, HMRC carry out compliance visits. HMRC may ask to see the records supporting any payments made.
Additional NICs that may be due for both current and prior years can be demanded by HMRC. These arrears may be subject to interest and penalties.