Problems with employers

Tax Guide for Employees guide


As an employee, your employer is responsible for paying your tax. But things do not always go according to plan.

What you need to know, and what might go wrong
Employment status
Some employers try to avoid their responsibilities by treating people who are really employees as though they are self-employed. But, from HMRC’s point of view, this a question of fact – not something you can choose.

It is important to know if you are employed or self-employed for many reasons. These include employment rights, (such as rights in redundancy), and liability to pay tax and National Insurance.

The self-employed are responsible for paying their own tax and National Insurance through self assessment. Employees pay tax and National Insurance via their employer through PAYE.

Workers, particularly migrant workers and others who are unfamiliar with the UK tax system, can be particularly at risk of being taxed as self-employed.

Insolvent employers and those who fail to pay tax and National Insurance deductions to HMRC
Employers may deliberately avoid paying payroll taxes to HMRC. Sometimes they will have submitted inaccurate returns to HMRC so that HMRC is unaware of how much money is owing to them.

In such circumstances, your only evidence as an employee that tax has been paid on your behalf, is likely to be your payslip.

Complicated arrangements – often made by agencies
Sometimes, agencies from which you are getting work will propose complex arrangements, such as using an Umbrella company, as a way of reducing your tax liability, or of making it easier for you to get work.

These arrangements may include the firm withholding part of your pay to cover fees and tax deductions.
Sometimes the fees are quite large. Occasionally the deductions made by the firm to pay your tax bills are not available to you when you need them to pay taxes as they fall due.

Some arrangements made through such firms are an ineffective form of tax planning and you could be landed with additional tax bills.

There are rules which mean that many workers who work through complex structures (’employment intermediaries’) may be covered by the Agency rules and face being taxed as employees. In addition, from April 2016, your travel expenses from home to workplace may be taxable.

What action should I take?
If you have doubts whether you are employed or self-employed, or that your employer is paying tax deducted to HMRC

It is essential to have evidence of your employment. The basic requirement is that you have payslips for each payday showing tax and National Insurance deductions.

In addition, you should have a P60 form at the end of each tax year and a P45 form from the employer if you change jobs.

If you do not have this evidence, you could find that HMRC treat you as self-employed and expect you to pay any tax due. Alternatively, even if it is agreed that you are an employee, you could find that HMRC considers you liable for tax which should have been deducted, or does not give you credit for tax deducted, if you cannot prove it.

If you are involved in complex arrangements like Umbrella companies
You should take advice before entering any complex arrangements. You may need on-going help from a tax adviser.

Further information
On employment status
If you are unsure of your employment status, you can use the HMRC on-line status checker to obtain some guidance –

The results of this test are indicative only, when performed by an employee. You should also read the guidance on employment status on the HMRC website.

Employment status
If there is a dispute about employment status, then advice from a tax adviser should be sought.