Can I pay my employee tax-free for a second service?

Question

If I employ someone to do service A for my company, and he and my company pay tax on that employment, could I then ask him to do a different but related service B and pay him as a self-employed person for that second service? Is he allowed to register as self-employed for providing such a service? Am I allowed to pay him gross? An answer with reference to the UK tax law would be much appreciated.

Answer 1

Tax law does not cover this specifically. It is case law and common law. I suppose it is possible to employ someone and then have them do work that makes them self-employed. However, the Revenue is likely to challenge it as it is easier to argue that the person (and their duties) is an integral part of the business. There are particular regulations regarding office cleaners. The NIC regulations specifically state that they are employees for NIC purposes and that ruling is usually followed for tax.

I suppose if you employ someone who has, say, a landscaping business in his spare time and you get him to maintain the grounds of your place of business, you could treat him as self-employed. The essential ingredient here is that he must genuinely have other landscaping clients (preferably not related to you or your business).

You would find it very difficult to argue that someone in a managerial capacity who then does some technical work (even if alongside contract workers) is self-employed.

This is a difficult area to cover in generalities but I hope the examples I have given demonstrate some of the issues involved.