Employed or Self-Employed... that is the question

[sps1013]

People,

A long winded question which I will try and compress... what defines an employed instructor from a self-employed instructor?

I ask this because the Inland Revenue do not seem to give clear guidance about this area. I have recently enquired about an instructor job and was told that I would be self-employed. However, the Revenue state that I can't be self-employed as I am technically employed by the FTO. (they are my only method of income)

Can anybody please shed some more light on the matter.

Ta

[Maude Charlee]

Lots of companies try to pull this one as a way of avoiding having to pay NI contributions on your behalf, and complying with UK employment law.

The IR will take the view that you are employed if your work is largely dictated by the FTO (ie, you work when they say, on their pay rates, with their equipment), and particularly so if this is your only source of income.

[Gertrude the Wombat]

Employment status law is immensely complicated.

The chances are that everything that all potential "employers" will tell you is wrong, and the changes are pretty good that everything the Inland Revenue will tell you is wrong.

The only for-sure way to find out whether an engagement counts as employment or not is to take it through the courts after the event. (Unless it's particularly bang-to-rights fair-cop one way or the other, but yer average punter won't even know that without paying for professional advice.) This is partly why the Inland Revenue won't say for sure in advance - to be honest they don't have a clue either.

As an example of the IR's record of getting these decisions right look at contested IR35 cases: the IR lose a hundred or three for each one they win. So when they tell you "this definitely counts as employment" it's seriously possible that they might be talking complete bollocks.

This is, to put it mildly, an unsatisfactory situation. There are people lobbying for changes to the law to clarify this stuff, basically looking for a "right to be self employed", so that if the worker (under no coercion) and the client both want to regard the relationship as not being employment then they will actually be allowed to. This is, however, oink oink flap flap territory with the present government.

In particular, re:
The IR will take the view that
It doesn't matter a sausage what view the IR take. What matters is the law, as defined by the view the courts take. The IR lose more than they win, so don't believe any view they give you without at least taking further professional advice.

And in this context "professional advice" does not mean your everyday high street accountant or solicitor: they quite often don't have a clue either, not being experts in this particular field - "professional advice" means an employment status expert.

[mad_jock]

To be honest for instructors pay it doesn't actually pay for you to be classed as self employed.

It used to work out at something like 29k as a IT consulatant to be worth the hassel. Basically once your on 40% tax it is worth it.

The employeers will say you get to claim x y Z back.

Medical: its reqired to do your job its thier problem they should pay for it.

License: if you go over 3 years again its not a valid reason for them to get shot of you its their problem. Its thier cost not yours.

By being self employed they are trying to get round employemnt law on minimum wages and also you ability to go to tribunal if they sack you because they feel like it.

If you work day in day out in the same place. There won't be a problem you will be under IR35 as an employee.

Basically if anyone refuses to take you on because you don't want to be self emploryed i would shop the buggers to the IR. Its going to cost them heaps in accountancy fees and bull**** factor to get the IR to leave them alone.

The advantages more than outway the advantages to an instructor getting payed under 12k a year

[BEagle]

If you're looking for full-time employement, then yes, you should indeed be an employee. As should be the norm at a commercial FTO.

But if you only want to do a bit of PPL-level instructing now and again at Club level and you've got a 'real' job elsewhere, then it'll be simpler for all concerned if you're self-employed. Just declare your additional income on your income tax declaration and don't forget to offset legitimate expenses against tax....

When Club instructors were predominantly part-time PPL/FIs or R/BCPL/FIs who were happy to do a day or two's instructing now and again, there was rarely a problem; it suited everybody. But now that there are so many hours-building airline co-pilot wannabes around who think that the world owes them a living, there's all this carping about 'minimum salaries', 'the school should pay for my medical, revals, BUPA' etc., there seems to be a perceived problem.

If you want to receive a salary of about £30K as a full-time PPL instructor, then first find me some customers who will pay £200 per hour to fly a 30 year old Cessna 152. Until then, accept that UK PPL training can never afford to pay what I would call a half-decent salary. At least, not while it's still so easy to learn to fly at vastly lower expense in the USA.

Hopefully we'll see the return of part-time PPL/FIs (who may be paid for instructing) before too long - and the airlines will have to go back to proper training schemes for their co-pilots.

[bookworm]

The Revenue's guidance material is at:

http://www.hmrc.gov.uk/manuals/esmmanual/index.htm

[Whirlygig]

HM Revenue and Customs (as they are now called) use six basis tests in considering the employment status of an individual. These are true for all professions; not just aviation.

1. The nature of the contract - is it a contract for services or a contract of service.

2. Is "your customer" your only customer or do you have several. HMR&C will make allowances if you are starting up and haven't yet found a client base.

3. Do you have the right in your contract to send someone else as a replacement if you can't make it.

4. Do you use your own tools and equipment.

5. Do you partake in the risks and rewards of the business.

6. Do you choose when you work and how? Or does your "customer/employer" tell you how the job should be done?

The "self-employed" can save on tax in that their expenses are allowable as tax deductions i.e. getting to and from work. However, that person should be bearing all their such as medicals. The "customer" will save 12.8% on Employer's National Insurance as well. So, the HMR&C will always try to err towards employee status.

Hope that helps.

Cheers

Whirls

Thanks for the vote of confidence Gertrude!!!

[Gertrude the Wombat]

Thanks for the vote of confidence Gertrude!!! Oh, sorry, are you an accountant or solicitor?

Of course there will be exceptions, but what I report is the overall view of the umpteen thousand members of the PCG (http://www.pcg.org.uk) who have spent an immense amount of energy (and time and money) on employment status issues over the last few years.

(Actually looking at your profile it occurs to me that you might be a tax inspector. In which case I'm sure you'll be one of the ones who only takes on cases with a decent chance of success, not one of those who waste years of punters' lives on pointless investigations that you were bound to lose in the end anyway.)

[Whirlygig]

Gertrude,

...er... I'm a Chartered Accountant. I am currently working as a contractor (so understand the issues involved) in an area involving fraud investigation (hence the profile) but I am not a tax inspector :ok:

So it's OK - you can still talk to me socially and you'll be pleased to know that my body is not composed of 85% spit!!

I would have thought in the case of flying instructors - if the instructor is freelance, can he find and bring his own students to the school or does the school find the students. Does the school around the flying times with the student or will the student do that directly with the instructor. Does the school make the profit or can the instructor pay a flat rate to the school for the hire of the aircraft. These are a couple of other scenarios which HMR&C may consider.

Cheers

Whirls

[mad_jock]

*can they find and bring his own students to the school.

Yes they can. Normally the method of gaining students is for them to pruchase a trial flight from the flying school or club and then with sparkeling wit and charm sell them on the idea that they want a PPL.

*Does the school around the flying times with the student or will the student do that directly with the instructor.

The school will be the point of contact with all money transactions going through the books. They will allocate the plane and who is going to instruct that person.

*Does the school make the profit

Well most schools would like to make a profit. Clubs tend not to because of there setup.

*can the instructor pay a flat rate to the school for the hire of the aircraft.

Nope Though i have seen that the student pays for the plane and then pays the instructor seperatly. Schools don't like this though and its only usually done at none profit making clubs who cover the costs of CAA approval through membership fees etc.

also as well each instructor at a school is meant to be registred with the CAA working at that school. So if an instructor dosn't have any other form of income. They are only on 1 schools books....

And the other methods

1. you supply your labour as a service

2. You only have one customer thats the flying school you are registered with. They have several customers.

3. Nope in fact by the rules of the operation you can't get another instructor in adhoc if you want to do something else.

4. Nope definatly not

5. No you get a fixed fee per hour worked.

6. Nope you get told when to turn up and when your finished and you get told what your dutys are when you turn up.

What do you recon then Whirlygig?

And i also used to be a contractor but disappeared off abroad before IR35 hit, mainly because of IR35.

[Whirlygig]

As you don't know my real name and hence my ICAEW membership number, I shouldn't be struck off for giving erroneous advice!!

I would reckon that the Revenue would have a very good case to say that that example constitutes employee status. The school would be in deeper do-do than the instructor!

I would like to hear the school's argument for self-employed (other than employer's NIC avoidance!)

Cheers

Whirls

[homeguard]

How instructors are contracted is very very different one from another.

A CFI working full time and receiving a wage or salary and also an instructor in a similar circumstance is obviously employed. However many are not; working ad hoc and being paid ad hoc.

I do not pay part time Instructors a retainer but do pay travelling/turn up out of pocket expenses when appropiate. They are paid by the 'hour flown' or part thereof. Weather will in the most part determin how many hours if any that are flown each day. The Instructor alone determines the appropiate lesson for the student and the content to be flown that day and also whether the met conditions will allow the lesson aim to be achieved - in that sense and in others they retain a professional independance. I would of course expect all Instructors to work in consultation with me in providing continuity and policy.

Taxing and NIC would be a nightmare in the circumstances for ourselves and the Revenue because pay and benefits would be unpredictable and difficult to manage and audit. Which is why, I believe, the Revenue continue to accept the 'self employed' status, in the main, of part time Instructors.

[Whirlygig]

If the "part-time" instructors have no other source of employment income, then I'm surprised that the Revenue are accepting it. Probably more like, haven't got round to reviewing it!!! The Revenue are in a bit of a mess at the moment and many circumstances are going unnoticed rather then being investigated.

The circumstance which you describe does not indicate to me self-employed; the fact that you find PAYE difficult to administer is not a valid argument; Employer's NIC is 12.8% of gross pay (as near as dammit) so that should help in your cash flow management. Pay would be just as easy to predict as paying your instructors on their invoice. Benefits? You give them? Audit is straightforward; you keep records! None of this is unpredictable. Honest. There is no reason why you can't run ad-hoc PAYE. There is nothing difficult, different or complicated about the financial aspects of an aviation business (apart from the fact that it's a good way to make a small fortune!!) and these circumstances apply to many different professions. This situation is not unique.

Professional independence as you describe is NOT one of the factors which the Revenue would take into account. As an ACA, I am governed by rules of my Institute which override what my employer tells me to do. Similarly, with the commercial pilot's licence I would imagine.

This is just my humble opinion and all I suggest is that those of you in that murky grey area, be careful. You could get done!!

[ariel]

Been there, done that....

Couple of years back, the views of both myself, (as RTF), and those of the instructors, were that they (instructors), wished to be treated as self employed.

The revenue, however, had different ideas, based on the points already raised.

This was a battle that took me 10 months to win, (yes, I won, not the revenue), and our staff are now <very legally> self employed.

All it took was the correct interpretation of the points of employment / self-employment, but this was spun out over a much longer period than anticipated.

ariel

ps. quote:
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There is nothing difficult, different or complicated about the financial aspects of an aviation business (apart from the fact that it's a good way to make a small fortune!!)
-----------------------------------------------------------------------------

Whirlygig - From reading some of your contributions, you are obviously an intelligent and articulated person, whose contribution to this board goes without saying, but on the above quote, I can only reply

TRY IT FOR YOURSELF, AND SEE... especially the bit about the fortune!!

[Whirlygig]

As a matter of interest ariel, what was the interpretation of those points?

Cheers

Whirls

[mad_jock]

nah it doesn't.

You phone the IR up and 2 days later a pack comes through the post.

For each person you submit 1 form to the IR the forms are provided and it takes about 1 min for the person to fill out.

You then start using the emergency tax code.

You then decide if you are doing it weekly or monthly. (would do monthly).

Total up what each person has earn't. Stick it in the column.

Then look up the first booklet and read across and you have taxable income stick it in the col for that. Next use the table in the monthly section and it will give you the tax. Then do the same using the NI booklet. It will give you employees and employers. Again stick into the col provided.

Then write cheque to employee for pay plus none taxable expenses and a cheque to the IR for NI and TAX.

Within about 2 weeks the IR will send you a tax code for the employees. Just start using that tax code instead of the emergency it all works its self out.

Takes about 10 mins per person every time you pay them. And that dosn't matter if you pay them 10 pounds one month and 3000 the next. Then at the end of every tax year you copy the last line in the working sheet onto a P60 and give it to the employee.

The working sheet that you use to fill out from the booklets is your audit trail. Or you can make a spread sheet up and use that instead to check the maths and then transfer onto sheets.

If the employee wants to go for a medical and you have agreed with them that they are paying you pay for the medical and deduct it off the amount to be paid before tax. If they want to go on a course and your vat registred you deduct the amount before VAT off the pay. Thus the person dosn't pay VAT and NI and tax and you don't pay the employers NI. And if you really feel nice you can factor in the amount you will gain off the employers NI contribution.

There really isn't any excuse if trades men can do it. A highly trained commercial pilot should have no problems getting to grips with it.

MJ

[Whirlygig]

ariel,

I thought it was one of the oldest aviation jokes.

How do you make a small fortune out of aviation? Start with a large one.

Sorry - didn't think I'd have to explain that one!! There is still nothing that's any more difficult in running an aviation business to any other. There is nothing complex in it. Tough business wise and commercially maybe but financially, it should all be straight forward.

Cheers

Whirls

Thank you for the compliment but I'm not articulated - just have double-jointed elbows!! :ok: ;)

PS - mad jock - a MANUAL payroll !!!! I haven't seen that run for nigh on 20 years!!! Big blue P11 forms? Makes me feel all warm and nostalgic.

I know I shouldn't but I can recommend a computer payroll package which is synomous with "a wise man" and "a green colour"

[ariel]

Whirlygig

I don't have the details to hand, (the correspondence between ourselves, the accountant, and the revenue was vast, and is stored in a file, which I don't have here). The correspondence also included a test case, (the revenue against another employer - the employer retained the right for self-employment in that test case).

However, from memory, here are some of the points, (in no particular order), of the issues debated with the revenue:

Owning tools and equipment.

That for us, was the 'tricky' one We obviously own the aircraft, but the instructor owns all other items of equipment, (headsets, notes, equipment, etc..)

Do the instructors take risks with the business?

An emphatic NO. They are not deemed to be 'part and parcel' of our business.

Do instructors choose when and how to work.

On the question of 'when' - sometimes they do, somethimes they don't. If they don't want to work, we'll find somebody else. On the question of how - we do NOT tell them how to do their job - they are highly trained professionals, and how to instruct is left up to them.

If instructors cannot carry out work which they SPECIFICALLY stated they could, the onasis is on them to try to find a replacement. If they can't , we will try to. If we can't get somebody at short notice, then it is the instructors responsibility to cancel and rearrange the students who will be let down.

There are other points, but I'm not prepared to go into them on a public bulletin board.

One thing I will say though, is that should we have 'lost' the issue of self-employment, we had a 'get out' clause: The nature of the business would have been restructured - students would have paid us for the aircraft, and the instructor for their services. Also, we would have hired out the aircraft to the instructor. (They would then have paid us for that, and then charged the student whatever rate they wished).

On our accountants advice, no court in the land would then deem our instructors as being employed.

As previously stated, it took a lot of battling for the revenue to back down, but in a way, I'm glad it happened when it did, because we are now well and truely 'above board', with nothing to hide, and no retribution to fear.

ariel

Edited to say

Whirlygig. Sorry about the quote. You are of course correct about the old aviation joke of 'put 3 million in to make 1 million' I'm spending too much time at this airport!!

[mad_jock]

yes it does make life simpler. But you know what flying schools are like with computers.

I just made a spread sheet up and you stuck in the amount that was taxable pay and it spat all the numbers out. Cheques were then written. And the columns all tallyed with the big sheet.

I can see the percieved advantage to the instructor if its a part time second job. But with some creative managment you can offset alot that you wouldn't normally dream of getting through as expenses. Usually getting the VAT back as well the tax.

Now the horrible little grunts of hour building FI's. Its a nightmare for them. They will incure breaks in their NI contributions resulting in years of stupid letters wanting them to pay extra into the state. If they are ill its a swine getting sick benefit. All the other benifits are a pain virtually impossible to get low income benifits like housing support etc. Your services can be terminated at a whim with no come back. And you won't be able to sign on afterwards for a reasonably long period. Your ability to claim back proffesional expenses is a pain you have to to do a tax return every year.

Where as PAYE. Between you and your employer you sort out paying for the license and medicals before tax and without paying VAT or NI. You have full access to the state benefit system. And you don't do a tax return every year.

MJ

To be honest I think the real reason why the IR won't go for cases is becuase the amounts of money are not cost effective to chase. A FI on under 12k a year is not alot in the grand scale of things. As long as both partys want it no problem. I have always worked PAYE for flying schools. And that was even when working part time. And to be honest I would put a complaint into the IR if I got knocked back because I refused to be payed self employed.

[Whirlygig]

Ariel,

Yes, those are exactly the points I would expect to be addressed and your get-out is roughly what I suggested some many posts ago.

One of the issues could be, with respect to "how you do your job" - does the school have it's own standard teaching manual/material or has the instructor written their own.

It was interesting what you said about the instructor having to find a replacement if he couldn't make it - that, I would think, would have been a key issue.

Thanks for explaining that; I'm sure it has clarified things for others.

As an aside, one of the most complex industries (apart from financial services which just makes my eyes glaze over) is the construction industry and the "self-employed" sub-contractor. We all know about builders working for cash in hand so a scheme was introduced whereby every subbie had to have a CIS card (construction industry scheme). No card, no pay. This card, issed by the Inland Revenue, would tell any main contractor how the person was to be taxed i.e. basic rate only or gross. It would be quite handy if that scheme was fleshed out and extended to all self-employed persons and industries. Then, as you say ariel, there's no doubt and everything is above board.

Cheers

Whirls

[mad_jock]

It was interesting what you said about the instructor having to find a replacement if he couldn't make it - that, I would think, would have been a key issue.

And a bit dodgy as well as all instructors for a school are meant to be put on the list. And also standised by the school to the Pilot order book which must be written by the school not the instructors. The pilot order book is part an parcel to getting your approval for the school. So each instructor cannot choose for them selves what they do. If the pilot order book states that students can't go solo in over 10knts of cross wind thats what has to happen. Or that the student needs to have Air law passed that whats happens.

If one of your instructors decided they didn't want to do a lesson they couldn't phone any instructor up to do the lesson they would need to get one off the list of instructors with the CAA for that school

Problem is by arguing down that route you are are actually going against the CAA approval of your school.

Mr ops inspector.

What do you mean all your instructors are highly proffesionals and teach the way they want to teach. Its says in the Pilot order book that xxxx must be done.

Mr tax inspector. I though your instructors could do what they like.

Err yes they can as long as it complys with the pilot order book which is an approved maditory document for the schools approval.

Mr OPS

Who's that chap over there instructing

err thats bob

Mr ops

He isn't on the list

Err bobs covering for Dave.

Mr Tax man

I thought anyone could work here with an instructors rating.

Mr ops

Good gawd man the CAA has to be informed and standarsation training should be carried out to make sure that they know the Pilot order book you know that book that tells all the instructors how to operate in this school.

I think the IR didn't have a clue about what was involved with the regulations to do with running a school. And gave up because of the small amount of money involved.

MJ

[sps1013]

Well... I did not think that this question would generate such a "lively" debate.

I have thought long and hard about what you all said and at the end of it I still cannot see how somebody who does not supply the main tool for their self-employed "job" can still be deemed to be self-employed!?

The Revenue states quite clearly on its website that if you do not provide this tool then amongst other criteria you are EMPLOYED.

There are quite literally hundreds if not thousands of different scenarios to be put forward but at the end of the day how difficult is it to simply put the instructor(s) through the books and sort all the Tax and NI out for them?

When the penny finally drops at the Revenue which someday it will, who knows where this will end? The clock is ticking and then when the alarm goes off the preverbial will hit the fan and at the end of the day it will cost a whole lot more for the FTO's to clear their name and the huge tax bill.

Am i going a little too far here but if the instructor is deemed to be self-employed and therefore has no contract or official employed position within the FTO then in the event of an accident / incident after which Mr Student decides to sue, who is at fault?

If the school protests that the instructor is self-employed then does that mean that the instructor should have his own Public Liability and Indemnity insurance? Also if travelling to and from the place of work and the vehicle you are travelling in has an accident after which an insurance claim is made will the insurance company not deem you to be self-employed and subsequently require business use insurance?

I am also going to point out that there may well be some genuine and correct cases within flying to be self-employed but if you have spent thousands out on getting where you want to is it worth risking it all for the sake of deleting the word "self" before "employed"?

[BEagle]

Some points:

There is, of course, the position of the PPL-holding FI to consider. Such a person cannot receive any remuneration and can therefore never be 'employed'..... To receive some reimbursement for actual travel expenses is about all he/she can expect.

It might be argued, therefore, that it is an individual's own choice to spend tens of thousands of pounds on a CPL which, strictly speaking, he/she doesn't actually need; presumably he/she had a business plan in mind when committing to such an investment. That a RF is permitted to offer remuneration to a CPL-holding FI is a benefir not to the RF (as it increases their costs), but to the FI.

Imagine the day when a RF can use part-time PPL/FIs exclusively. They will then be able to reduce the costs to a customer learning to fly, have no 'employment' concerns etc.... And airlines will have to go back to selecting and training their own pilots rather than relying on self-funded pilots who have paid their own way to a CPL/IR with ATPL knowledge, plus multi-pilot type rating and IR.

So if that's what you want, keep moaning about your 'employment status', payrolls, tax etc and you'll push up the RF's costs to such an extent that they won't be able to afford you - and you will have priced yourself out of a job.

The RF who offers you some part-time work is assisting you to maintain your licence, rating and medical validity and possibly paying your travel expenses - as well as facilitating your own command hour-building. There is some silly idea that the RFs are raking in the money by diddling their FIs - this is utter nonsense. The vast majority of FIs have absolutely no idea of the costs faced by a RF trying to keep alive against a background of spiralling fuel and maintenance costs as well as the ludicrous health and safety obstacles wrought by the enviro-fundamentalists.

Had the CAA, in common with every other JAA state, refused to 'approve' JAA training outside our shores, perhaps the UK flying training industry would now be in a much healthier state. Maybe things will change under EASA - who knows?

[ariel]

Beagle

Wholeheartedly agree with everything that you say, and personally hope that the day of the PPL/FI will soon be with us again.

I know of quite a few extremely competent PPLs who would love to instruct, (and I'd love to have them instruct), but are deterred by the thought of having to go through the whole commercial course to do so. Even if they wish to instruct unremunerated, they know that they've still got to sit & pass the commercial writtens before undertaking an FI course; that in itself is a big undertaking for those who do not wish to become commercial pilots.

Hence, people are put off, and we miss out on securing good, dedicated instructors.

Mad Jock

Of course we've got a pilots order book, and naturally, all instructors, students, self-fly-hire customers, and airport users read it, sign it and then <hopefully> adhere to it.

Any 'replacement' instructor will have read and signed the book, and be legal in every way - we don't drag them in off the streets!

There are of course, regulations which all instructors keep to, but within those regulations, we do not tell them how to do their job. All have different 'styles' of instructing, as do school teachers, BUT they will all keep within the curriculum, and keep legal. For instance, no instructor will send a student solo until that student has gotten a pass in the Air Law examination.

But, back to the main topic of this thread; however our operations as a RTF are interpreted by contributors and readers of this board - as stated, with regards to the revenue, our instructors employment status HAS been investigated, and a conclusion drawn.

ariel

[DFC]

BEagle,

Your idea about the PPL instructor being paid will make zero difference to the situation. Look at the Microlight training schools where all the instructors must hold a PPL! They are paid and many provide instruction as their main/ only source of income.

-------------


Of course as far as the "school" is concerned having the instructor self employed does not only have NIC contribution aspects. How about - minimum wage, annual leave, sick pay etc. Lots of expense to the "employer" which the HMRC have no interest in.

Regards,

DFC

[sps1013]

I think you may be missing the point about "moaning" regarding the employment status.

Nobody wants to see costs go up but they do want to instruct safe in the knowledge that they are covered by law and are not going to get lumbered with a massive tax bill on top of the thousands already spent which incidentally has been well thought out by most people.

I am not speaking personally about the issue of employment status merely asking as I was asked the question by somebody who is considering the career.

[Gertrude the Wombat]

Point is, that in answer to your original question:
Can anybody please shed some more light on the matter. the answer is "no, nobody can, not a lot".

It doesn't matter what relationship you and your client choose to agree to enter into, as grown-ups exercising your right to make your own choices in a free society, some court can turn round later and overturn your contract, and the rules that they use for doing so are sufficiently obscure that even after paying lots of money for expert professional advice you can still never really be sure of the outcome.

[mad_jock]

For instance, no instructor will send a student solo until that student has gotten a pass in the Air Law examination.

So therefore you dictating a requirement to the instructor. There is no legal requirement for a student to have passed Air law before going solo. ( the debate if it is a good idea is for another time). You are telling them how to do their job. Personally I have sent tens of PPL students solo with out air law and solo nav with out Nav being passed all perfectly legal.

Sps1013 i wouldn't worry to much about yourself being done by IR it will be the employer that they will go for. And that employer will be assesed charged for back tax including interest.

The only reason why a school wants an instructor to be self employed is for the avoidance of of NIC contributions and obeying the rights of an employee. If both parties are happy with the situation the amounts of money in the great scheme of things won't matter.

There used to be the same arguments in the driving school set up. And the AA and BSM had to change to making there instructors franchise holders. But that was fought in the courts because of the amount of money invovled. And there whole industry had to be restructured.

What ariel is describing is more of a cease fire where the IR because of the money involved has given up to persue more profitable cases. They are judged on money recovered not on the number of cases prosecuted. You are never finished with the IR until you have your day in court which many IT contractors are finding out these days after presuming they had got away with it 5 years ago. And if you do go to court you will never win even if you do get a ruling against the IR. The cost of the expert legal types will be quite high.

Most hour building FI's don't really give a toss, because all they are interested in is hours in their log book and an escape route to auto pilots and "what do you want in your coffee". The fact that they are getting let loose for 5 hours a day in an aircraft is worth more to them than any lost benefits. And most will be current for only one cycle of their rating (no cost there) and maybe a couple of Medical cycles and as the medics usualy are nice to instructors it will only cost 50 quid.

It was a good question and has generated some good debate.

Who is right?

Proberly neither side of the argument becuase every case is different. But its been good to air both sides of the argument and you never know maybe a Tax inspector has read this and the next time they are looking at a flying school doing self employed will think i am not having that!!! And new meat FI's will realise the type of employer they are working for if they get forced into working self employed.


MJ

[ariel]

Mad Jock

Guideline, not dictation, and used as an example

As for 'never being finished with the IR', well, I have the letters from them that state otherwise, (as far as the employment status of our instructors goes).

As far as we are aware, we are not 'getting away' with anything - things have been done by the book.


quote:
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Most hour building FI's don't really give a toss, because all they are interested in is hours in their log book and an escape route to auto pilots and "what do you want in your coffee".
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Exactly - you said it!

This is why, on another note, the return of the PPL/FI would be beneficial to all

It is not my intention to enter into any sort of debate over this topic, I'm simply imparting an account of my experiences to this board, in response to the starter of the thread.

You are correct when you state that every case is different. In employment law, as in other areas, individual cases can, (at least initially), only be judged on their own merits.

ariel

ariel

[bogbeagle]

Interesting posts.

I do a bit of instructing for a large club in the North of England. The revenue is currently undertaking a status assessment. Several instructors have been asked to attend formal interviews with the revenue and have been asked numerous questions re working conditions, financial risk etc.

As yet, no pronouncement has been made by the revenue wrt the employment status of we instructors, but I understand that the club has been sent a substantial bill. Whether the club will pay up or choose to go to law remains to be seen.

I shall keep you apprised of the situation. However, it seems to me that most flying instructors effectively subsidise their students' flying by working for paltry incomes. I don't buy any arguments which suggest that we shall price ourselves out of the market if we are paid properly. If students want to fly, they should pay an appropriate price.

bogbeagle

[Pat Malone]

By coincidence I ran a three-page article on this subject in the AOPA magazine General Aviation this month.
The article was written by an aviation accountant and concerned a flying instructor who'd been found to be an employee by the taxman, but self-employed by an Employment Tribunal. The decision of one was not binding on the other.
The instructor had been employed full-time, but her services were dispensed with and she was later rehired as full-time self-employed by the same company. She was subsequently fired and took her 'employer' to a Tribunal claiming unfair dismissal.
While the tax office ruled that the nature of her job made her an employee, and therefore she had to pay a certain rate of tax and National Insurance, the Employment Tribunal, using the same facts, ruled that she was not an employee and therefore did not enjoy the protection of the employment statutes.
Damned if you do, damned if you don't. Does she get her NI back? No chance.
There is no single definition of employment across government departments, as evidenced by the fact that it took the accountant three pages to get the point across. If anyone wants a PDF of the article I'm happy to pass it on - email me [email protected].

PS: I might add that the club she worked for is also in a pickle because the Revenue intends to pursue them for unpaid tax and NI, penalties and interest. Both sides need to beware.

[cadaha]

What about setting up a limited company as an umbrella. You could have several instructors under that company who contract their services to the school.

When I was contracting as a computer programmer no company would contract your services unless you were a limited company.

It is easy and cheap to set up and if instructors can work together and share the load of admin it would be a solution.

Thoughts??:ok:

[Whirlygig]

Yes, that will work but the bulk of the instructors' remuneration would still have to be paid through PAYE. If the instructors are also the shareholders (which they would be otherwise there's no point) there is a limit on how much they can receive as a dividend on their shares due to IR35 rules.

Although expenses can be reclaimed through the company, the company will have to pay 12.8% employer's NI.

It is a workable scheme but you have to look very closely at the pros and cons to see if it would work for YOU!

Cheers

Whirls

[John Farley]

Just some thoughts - not trying to suggest I have any answers.

15 years ago I set up as a self employed test pilot. In those days it was the DSS who decided if you were kocher. Because one of the companies I was working for had been my employer only a few weeks earlier they thought they were really on to something.

In my case it came down to did I now have the right to say no to any job I was asked to do by my previous employer. The answer to that was a clear yes.

For a QFI I wonder if the aircraft really is the main 'tool of his trade' ? Could you not argue it is a combination of his licences/ratings/experience?

Can you be a self employed taxy driver using a firm's vehicle? I suspect there are some filling in when a regular driver is sick. Is it not your ability to navigate that makes you different from just another car driver?

[Whirlybird]

Self-employed gardeners often use their clients tools. So do self-employed cleaners; I never met one who had their own vacuum cleaner. AFAIK, the IR look at a series of things - who owns the tools, can you refuse a job, who decides when the work is done, etc etc etc. There's no one individual thing, and it's not cut and dried.

[unfazed]

From my experience those who require instructors to be self employed are doing so simply to avoid costs which they should rightly bear.

I am getting fed up of hearing how difficult it is to run a flying school and how margins are so small and wouldn't it be great not to pay instructors at all - and won't PPL instructors make such nicer "employees" - ABSOLUTE Boll££$%s !!!

Rule 1 of business - Pay the people who make you a success. If your circumstances are so dire that you cannot do that then it is time to shut up shop and call it a day. What is the point of ripping people off just to keep trading. Not very ethical, smart or business like.