This is a really big problem in the Performing Arts industry, where traditionally everyone who works on different productions, for different people always was self-employed, but the guidelines HMRC have fit us with some difficulty. In truth, if you all work together, all of the time, for one centre then it would be hard to see you as anything other than employees, but holiday centres in particular 'employ' people on fixed term contracts, maybe (even for the resident band who play every week for maybe 5 or 6 nights) on one month contracts - this, they argue successfully is NOT employment.
I work for myself, am VAT registered and for one of my regular clients this is enough - they give me a contract for the total fee for the period, and I invoice them before I start. However, I have around 18 cast and crew under me, and apart from the top turns who are VAT registered like me, the rest get PAYE status - and pay Class 1 NI contributions. This is an arrangement approved by HMRC and is designed to ensure that the production company don't get hit with paying the Tax the cast and crew should have done - when their self-employed status turns out to be bogus. The company just won't take the chance.
However, another regular client always deducts 20% tax from my fees yet their deal with HMRC doesn't require NI contributions - weird, but no doubt brought about by problems in the past. As I really am Self-Employed, I've paid tax I shouldn't. The system my accountant suggested to deal with this is to show the invoice for the full amount, but when they pay, clear the entire invoice (even though this is actually 20% short) - at the same time I create an entry as if I have bought something for the tax element. This counteracts the missing money and keeps the book straight. When he prepares my accounts, he takes this tax paid into consideration when working out my liability.
That's confused you enough, I guess.
Musicians are by nature unreliable, so you'll have to work out if you dare risk doing it how you currently are. If you have documentation to explain it all, I'd suspect you will be OK, but if your paperwork is iffy, or worse, one of the band gets in trouble with HMRC, then you can expect them to be very interested.
My advice is pay everything via a bank account so there is a paper trail in and out. So you bank the cheque for £1000, then you give each of them a cheque for £250.
Finally, it is quite possible to be self-employed AND PAYE at the same time, but really you just need an accountant. I always say it, but a decent accountant can almost guarantee to save you more than he costs, and the Revenue like dealing with accountants, rather than idiots like us who do best guess!
Many accountants will give you 30 mins of advice free and your books might be quite simple and not cost a lot - I'd recommend getting one, even if this has to come from your own percentage. You could find all sorts of advantages. If you wear special clothing on stage - you might get away with this as expenses. This has got a bit tighter over the years, but if you have to buy equipment for work, and you could argue stage wear you can't wear outside is work equipment - then this may reduce your tax liability. I've switched to in-ear monitors as I want to protect myself from too much noise, and this kind of thing will be fine in the accounts too.
Students often think they're self-employed as they do a bit of playing, but the Revenue do accept the concept of hobby income as an alternative to self-employment. It depends on your circumstances. Mind you, I cannot sign on and if I don't work, I don't get any income. If the rest of the band get money from other sources, I'd be careful - because when the Revenue think you have earned, they'll want their cut - and the onus is on you to prove you don't owe it, not the other way around. Could you afford to pay a year's employers tax and NI contributions on the money you have paid them?
Unlikely, but possible.
