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The VAT implications of a change in employment status
One of our clients has recently had a PAYE compliance visit from HMRC. After reviewing a contract the officer decided that a worker who had been classed and paid as a self-employed subcontractor was in fact an employee.
The worker was VAT registered and had charged VAT. However our client is not VAT registered so had in effect borne the cost of this.
When we worked through all of the tax and National Insurance calculations we noticed that after correcting all the direct and indirect tax effects HMRC would actually owe money to our client.
We stressed this point to the officer but he was uninterested. He said that HMRC had pursued the case on the basis that PAYE liabilities were owed and VAT was a separate issue.
We have now almost reached an agreement with HMRC on PAYE and National Insurance liabilities...
