From understanding expenses to starting a limited company, our downloadable business guides can help you.
The false self-employment (Onshore Employment Intermediaries) legislation, which came into effect on 6th April 2014, is still causing confusion for Contractors – there have been no tribunal or court cases about it yet, so we don’t know how HMRC’s legislation will be interpreted.
However, some light was shed on understanding the legislation by a first-tier tribunal in June. Here’s our take on the decision:
The false self-employment legislation is meant to affect self-employed people who are employed via intermediaries – such as employment agencies, payroll or umbrella companies – who currently only pay taxes under self-employment.
The government introduced the legislation to clamp down on the use of ‘false’ self-employment models where workers and employers avoid tax and National Insurance contributions and where the employer also avoids their other employment responsibilities.
From 6th April 2014, workers in this situation will have tax and employee National Insurance Contributions (NICs) deducted from their pay at the source by their agency. Their agency will also have a new liability to pay employer NICs.
This means the temporary worker will pay 3% more NIC than they do as a self-employed person and the employing agency has a new liability of 13.8% employer NIC contributions.
Contractors who are placed in a temporary role through an agency need to prove they are genuinely self-employed and not working as a permanent employee.
Check out our guide for more information.
A tribunal decision has been published – although it is based on the preceding version of the agencies legislation, it is relevant to the new legislation as it discusses whether the workers were subject to control.
The only way to escape the obligations of the legislation (to pay NIC and PAYE) is to show that the worker is not subject to supervision, direction or control by any person, or to prove that the worker already pays NIC and PAYE.
A tribunal has recently considered what ‘control’ means – in the context of the old legislation – in the case of Oziegbe V HRMC.
Mr O was a security guard who had supplied other security guards to construction companies. The case considered whether Mr O was liable to operate and provide PAYE and NIC for the other security guards. HMRC alleged they were agency workers, who should have been under Mr O’s supervision, direction or control.
Mr. Oziegbe had trained and secured the required licence to act as a security guard and started to work for clients, generally within construction companies, in 2007. He engaged other similarly qualified security guards when he had work he could not perform personally, entering into Contract for Services agreements with them. The contracts included a number of key aspects normally found in a self-employment relationship, including the following in relation to control:
“I will not control or have any right to control how you undertake the services to be provided but I am entitled to lay down standards of quality and a time period within which the works must be completed at the commencement of any particular service. You will be obliged to act upon any assignment instruction provided by me.”
During the hearing, Mr. Oziegbe expanded on the terms of engagement, stating that the workers would periodically leave to work entirely on their own account or with some other operator.
His letter to HMRC, sent in December 2011, was highlighted. In it he confirmed that the security guards he engaged were able to work for as many clients as possible and that he has no direct control, while they are were engaged on a job and that they took their own risks. The amount of profit they made was in their control. He also confirmed that the security guards had been advised to pay their own tax, and evidence was provided that this had been done for at least four of the people engaged.
The HMRC failed to produce any evidence to assert that the workers were supervised, directed or controlled by Mr O; and at the hearing the HMRC seemed to accept that Mr O’s appeal against the HMRC assessment should be allowed.
The Tribunal found the security guards were contract workers and not employees as neither Mr. Oziegbe nor the end clients had control, or the right of control, over how the work was actually performed.
One IR35 expert said:
“Realistically, contractors rarely enter a business that has absolutely no skills that are aligned with the contractor’s. For example, banks typically have their own developers to work alongside financial IT contractors, and engineering businesses typically have in-house engineers working alongside the contractor teams.
“Control, is broken down into four areas: how, when, where and what. This case hinged on the ‘how’, because the clients were presumed by the tribunal judges not to be able to tell the security officers how to do their jobs because there was no evidence that the clients had the in-house expertise to do this. ‘Where’ is commonly ruled out as being a neutral factor because most contractors are required to work on their clients’ sites to access IT systems and equipment; or to perform their duties where they need performing, such as on a construction site, drilling platform or survey vessel.”
‘When’ and ‘what’ tend to be the deciding factors.
The expert concluded:
“Although being told when they can work might suggest a contractor is controlled, in most contractors’ cases, they can only access their clients’ sites at certain times: “If a client’s office is open from 08:00 to 20:00, clearly a contractor can only work during these times. But it is a positive IR35 element if they are able to vary the times they do the work between office hours.
“’What’ is increasingly the deciding factor. If a client can decide on whim that a contractor should focus on an emergency project, this demonstrates a high degree of control. However, if the contractor said ‘hold on a minute, I am happy to do this but it is outside of my existing contract so let’s put a new one in place for the duration of this emergency’, then this demonstrates a clear lack of control over what the contractor does.”
If you are an Employer and need ongoing professional help with any staff/freelance issues then talk to Lesley at The HR Kiosk – a Human Resources Consultancy for small businesses – our fees are low to reflect the pressures on small businesses and you can hire us for as much time as you need.
Please note that the advice given on this website and by our Advisers is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.
The Conservatives' 'National Living Wage' is not the same as the one proposed by the Living Wage Foundation. We look at the differences.
Darren Fell, CEO of Crunch, said: "We welcome the government's commitment to adopt the recommendations from the Taylor report. We would however, urge caution that any response does not introduce more red tape, or reduce the ability for entrepreneurs to employ people flexibly."
How likely is it that your employer or client will be keeping an eye on you? In the eyes of the law, can your employer spy on you at work?