Do you know if you are an employee, a worker or a self-employed contractor? It may not seem important but when it comes to tax and employment rights, there are significant differences.
In an attempt to clarify the definitions, HM Revenue and Customs (HMRC) has launched a new online employment status tool, which provides organisations with an answer based on a series of questions.
It comes in advance of new rules for intermediaries, introduced to the public sector this month, which shift the responsibility from individuals to employers for ensuring that people who work via a limited company pay the right level of tax and national insurance.
However, concerns have been raised that the tool is unreliable, inaccurate and could cause confusion, particularly for those who work in the so-called ‘gig economy’, where people are employed by companies on a job-by-job basis.
While the tool can provide an indication of how a person should pay tax, it leaves unanswered the question where someone stands in relation to their employment law rights.
That has to be worked out separately, based on factors including:
– the extent to which the person is under your control
– whether they have to do the work personally
– whether you have to provide work, and whether they must do it.
What’s the background?
HMRC released the online tool in March as a way to help organisations decide whether public-sector workers fall under the IR35 intermediaries tax legislation.
The legislation was introduced at the turn of the century to prevent workers avoiding employee income tax and national insurance contributions by supplying their services through an intermediary and paying themselves in dividends.
However, the Government has long had concerns about widespread non-compliance with IR35, meaning that, over time, further layers of legislation have been added. The latest change, which came into force earlier this month, is in relation to public sector employers that contract with personal service companies (PSCs).
Public sector employers that contract with PSCs for the supply of workers will now have to consider the nature of the engagement and, where applicable, deduct employee tax and national insurance contributions (NICs) from the payments they make to the PSC. The public sector body will also be responsible for employer NICs in place of the PSC. Previously, responsibility for paying the right level of tax and NICs has always sat with the individual themselves.
Why the concern?
IR35 is a complex issue. It takes expertise and the ability to look at each case individually to be confident of an accurate decision.
Critics of HMRC’s new tool are concerned that such a one-size-fits-all approach can be unreliable and fails to fully answer the question.
Currently, employment law recognises three main statuses under employment law – employee, self-employed and worker – whereas tax law only recognises two: employee and self-employed. As a result, it is possible for HMRC and an Employment Tribunal to come to different conclusions in the same case.
How can Gotelee help?
Employers, more than ever before, need sound and clear employment law advice to help them to protect their employees when things are going well and to protect themselves when relations break down.
To find out more about how we can help you, contact us on 01473 298126 or email email@example.com.