To be or not to be… Employed, that is the question!
Whether staff are employed or self-employed can have a significant impact on a business and the individuals in respect of tax, National Insurance Contributions (NICs) and individual rights and it is therefore important to ensure that the status of staff is considered carefully.
Some workers supply their services to businesses via an intermediary such as a limited company to avoid tax and NIC and employment rights and may be regarded as ‘disguised employees’, however there is certain tax legislation known as ‘IR35’ which is designed to combat tax avoidance meaning that a business will have to pay income tax and NICs as if those workers were employed.
In considering whether an employment relationship exists, the Court will consider the following factors:
1. Control: what degree of control does the business have over what, how, when and where the worker completes the work?
2. Substitution: is personal service by the worker required, or can the worker send a substitute in their place?
3. Mutuality of obligation: mutuality of obligation is a concept where the employer is obliged to offer work, and the worker is obligated to accept it.
4. Provision of equipment: is the worker expected to supply and use its own equipment or whether the business provides the same?
If HMRC considers that the worker is an employee, the legislation makes provision for paying that extra income tax and NICs by the business and HMRC can go back at least six years to recover this.
By way of an example in recent case law, the First-tier Tribunal has held that IR35 (i.e. that the worker was not an employee) did not apply to a presenter providing services to the BBC through a personal service company. The tribunal identified the actual legal obligations of the BBC and the service company, considering all relevant evidence. The BBC had no first call on the presenter’s time or extensive control over her other engagements, despite these being contractual terms, as the parties were unaware of them. Similarly, the express right of substitution was impractical and so was discounted.
This demonstrates the importance of written agreements matching practice. Although concurrent engagements did not preclude employment status, the presenter’s “professional identity” and remuneration were linked more closely with her non-BBC engagements. The presenter’s long history of freelance work and serial engagements was “significant”, so previous engagements were relevant in determining current employment status. The tribunal commented that modern working practices rendered home working unimportant but considered relevant the presenter’s lack of access to BBC systems at home to perform BBC work and noted the inapplicability of the BBC’s formal processes (including annual reviews and entitlement to pursue internal vacancies). The tribunal also placed weight on the lack of holiday and sick pay, maternity leave and pensions.
The law on this matter can be complex and it is important to understand the implications of workers being employed or contractors and ensuring that whatever the arrangement, a contract of employment or service contract is in place. Please contact either Akanshi or Jerry for further assistance on your employment queries.
Author: Akanshi Agrawal