How to Stay Safe from HMRC
14 November 14 | By: Jas Jhooty
There are tax and National Insurance Contribution advantages to both the hirer and the worker if the worker can determined as being self-employed rather than an employee. However this is not a matter of personal choice or else everyone would say they are self-employed.
Surprisingly there is no statutory definition that determines a worker’s employment status. Instead it has been left up to the law courts to formulate case law that has resulted in the following questions needing to be answered about the nature of the engagement between the hirer and the worker: –
Is the service of a personal nature?
Is there a mutuality of obligation?
What degree of control does the engager have?
Has the worker the right to substitute their work to someone else?
Does the worker provide their own equipment?
What is the degree of financial risk/ opportunity to profit enjoyed by the worker?
Does the engager provide Benefits-in-Kind to the worker?
Is the worker part and parcel of the organisation?
Are there trappings of trade present?
Determination of employment status
All of the answers to these questions are assessed in conjunction to arrive at the true employment status
These same questions are used to ascertain whether a Personal Service Company falls foul of IR35 legislation.
How emTax can help
Employment status enquiries are popular with HMRC who often insist that self-employed subcontractors should be classified as employees. However the HMRC view may not reflect the full picture, with employment status being a very ambiguous and complex area. The repercussions for the employer can be enormous with huge PAYE and Class 1 NIC liabilities arising if HMRC’s views remain unchallenged. If you are subjected to an employment status enquiry our advice is to ask one of our expert consultants to represent you as soon as possible.
As always prevention is always better than cure so it would be prudent to contact us to review your current arrangements when it comes to engaging with self-employed subcontractors or Personal Service Companies before HMRC start any enquiries. We can advise you on engagement practices and leave you with tailored contracts for services that should leave you ‘audit-proof’.
For more advice on this or any other employment tax matter, do not hesitate to contact us.