Can I make an ex-gratia payment to retiring employee but keep them on as a consultant?

Discussion in 'Employment & HR' started by rlellie14, Jun 6, 2018.

Thread Status:
Not open for further replies.
  1. rlellie14

    rlellie14 UKBF Newcomer Free Member

    21 0
    A senior employee is retiring but is willing to make himself available as a consultant over the next year or so. There will be no fixed hours, we can call him as and when and hopefully he will be able to help.
    If I've already made an ex-gratia payment to him as a retirement gift (thus avoiding tax/NI etc) will calling upon him as a consultant cause me problems with HMRC? He will invoice us for hours worked and he will no longer be on our payroll.
    Many thanks for any advice.
     
    Posted: Jun 6, 2018 By: rlellie14 Member since: Oct 24, 2011
    #1
  2. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

    12,194 2,542
    I think you will have to put him down as a employee on the payroll unless he has his own limited company
     
    Posted: Jun 6, 2018 By: Chris Ashdown Member since: Dec 7, 2003
    #2
  3. Adam93

    Adam93 UKBF Regular Free Member

    386 83
    Thud.

    A genuine redundancy payment (ex-gratia) needs to be present to get the beneficial tax treatment. The fact that he has retired means it can't possibly be a genuine ex-gratia payment and therefore you should've deducted tax and NI as normal.

    Do people obtain professional advice anymore?
     
    Posted: Jun 6, 2018 By: Adam93 Member since: Jan 18, 2018
    #3
  4. rlellie14

    rlellie14 UKBF Newcomer Free Member

    21 0
    Ha, thanks. I'm new to this company and this situation and nothing has yet happened so considering options. Professional advice very expensive so thought I'd run it by this forum first - looks like it was worth it!
     
    Posted: Jun 6, 2018 By: rlellie14 Member since: Oct 24, 2011
    #4
  5. Alan

    Alan UKBF Legend Full Member - Verified Business

    6,772 1,873
    Is it?
     
    Posted: Jun 6, 2018 By: Alan Member since: Aug 16, 2011
    #5
  6. Michael_Oxlong

    Michael_Oxlong UKBF Newcomer Free Member

    9 0
    Or registers self employed.
     
    Posted: Jun 7, 2018 By: Michael_Oxlong Member since: Apr 18, 2018
    #6
  7. Adam93

    Adam93 UKBF Regular Free Member

    386 83
    Being employed or self employed is a question of fact set by case law mainly. You cannot simply choose what you want to be classed as.

    There is also a middle ground when someone is neither employed or self-employed which is when they are considered a 'worker' which gives them more rights than a self-employed individual but less than an employee

    If you have an accountant for compliance work, they would probably answer ad hoc questions like this for free. From experience, an accountant will save you far more in tax they they cost you. Not having one, unless you are competent, is a bad idea.
     
    Posted: Jun 7, 2018 By: Adam93 Member since: Jan 18, 2018
    #7
  8. Michael_Oxlong

    Michael_Oxlong UKBF Newcomer Free Member

    9 0
    Pretty sure I chose to be self employed :D
    Though perhaps I should ask my regular clients for backdated holiday pay?
     
    Posted: Jun 7, 2018 By: Michael_Oxlong Member since: Apr 18, 2018
    #8
  9. DocsWizard

    DocsWizard UKBF Contributor Full Member - Verified Business

    79 9
    Payments on tax aside, he could come back as a consultant after a reasonable gap if he is genuinely self employed or a limited company.

    As already stated above, being self employed is not an option it is a fact. You are self employed or you are not. If it is disputed then a tribunal will apply a number of tests to establish if you are or not.

    Things they will look at include things like:
    • Is there a contract for services rather than an employment contract
    • Can you choose to take or leave the work offered
    • No holiday or sick pay is offered
    • Do you work for more than 1 business/client
    • Are you treated different to employees - i.e. don't invite him to the Christmas party or the weekly team meeting
    • Are you responsible for your own taxes
    A good contract for services will cover this and more.
     
    Posted: Jun 7, 2018 By: DocsWizard Member since: May 10, 2018
    #9
Thread Status:
Not open for further replies.