The Confusing IR35 Conudrum

Deciding someone's employment status can be extremley tricky, and Employment Tribunals and HMRC may consider different factors when deciding status, as there’s no single legal definition.

HMRC have a great tool available which allows you to check the employment status of individuals.

The questions are completed anonymously. The result is not legally binding and HMRC don’t keep a record of the result. However it is useful to see what type of questions they ask and what you should look out for.

HMRC employment status test

Are they employee's?

Presently, there’s no single legal test to determine if you’re an employee or a worker, but you’re likely to be an employee (whether on a permanent, open-ended, or on a fixed-term contract) if:

• Your employer provides the work, any tools and equipment for it, and they decide how and when you do the work (known as the “What, Where, When and How Tests”)
• You’ll usually have a written contract
• You’re expected to do the work yourself that you’re employed to do, and may be moved to different tasks
• You’re usually paid a regular amount according to the hours you work (through the Pay As You Earn (PAYE) system – so tax and National Insurance is deducted), and you usually have to work a set amount of hours. You may also get extra pay for overtime and bonuses, work variable hours.

Are they self-employed?

they are likely to be self-employed if:

• They determine how and when they do the work within reason (known as master/servant relationship)
• They can hire helpers or replacements if they’re unable to do the work (also known as substitution)
• They pay their own?Income Tax and National Insurance Contributions?on a self-employed basis (meaning they complete a?Self Assessment?tax return)
• They're contracted to provide services to the client/employer over a certain period of time, or on an ad-hoc basis, for an agreed fee and aren’t integrated into the company
• They run their own business and take financial responsibility if it’s successful or not, and provide the main items of equipment
• They may work on own premises
• They may have several customers (clients) at one time (known as economic reality).

If they're self-employed, the contract is called a ‘contract for service’.

Determining your employment status

There’s no one thing that completely decides this.

An Employment Tribunal will make a decision based on all the circumstances of the case to decide your status if there is a dispute between you and your employer. These are as follows.

• Level of control?– How much say does the employer have over the individual? Do they dictate when and how work must be done?
• Mutuality of obligations?– Is there a duty to offer work and for the individual to carry it out?
• Personal service?– Can someone else step in if they can’t do the work?
• Integration?– Are they part of the organisation?
• Financial risks?– Is there a risk for the individual to lose money if things go wrong?
• Equipment?– Does the employer provide them with equipment?
• Remuneration?– How are they remunerated? Do they receive a weekly or monthly wage?
• Taxation?– Are they responsible for own income tax and National Insurance Contributions on earnings or is the employer’s responsibility?

However, none of these on their own will decide your status. One judge has described it as ‘painting a picture’ of all the details and looking at the ‘picture’ from a distance.

So, as a rule of thumb, if you answer:

• Yes to all or most of the questions above, then it’s more likely that you’re self-employed
• No to all or most of these questions, then you are likely an employee
• Yes to some (specifically that you can decide when you will work and can accept work or turn it down; that the employer will only offer work when it’s available) it’s likely you would be considered a worker.

In the film and TV industry, there are many people working who find it difficult to determine their status.

The most recent of these is Talksport presenter Paul Hawksbee who failed to convince the court he was a contractor. The tax liability at stake – which the presenter will now be expected to pay to HMRC – amounted to ￡89,758 in Income Tax and ￡53,368 in National Insurance Contributions.

So if you employ contractors make sure agreements are done setting these things out.

Contact me on [email protected] for any help you may need on this and other HR and Employment law issue.

Inital chats will always be given free to see how we can help.