The media has been reporting recently on HMRC inquiries into the employment status of BBC personnel. The inquiries will establish whether workers should be taxed as employees or whether they are self employed.
HMRC have always been very clear that employment status is never a matter of choice but is dictated by the employment relationship.
So how can you, as an employer or an employee, ensure you are not subject to an HMRC inquiry?
There are a number of criteria to consider when determining whether an individual is an employee or whether they are self-employed.
Someone who works for a business is an employee if:
- They are required to work regularly unless they are on leave
- They are required to do a minimum amount of hours and expect to be paid for the time worked
- Someone is responsible for the work they do, when they do it and how they do it
- They can’t send someone else to do their work
- They have tax and NI deducted from their pay
- They receive paid holiday
- They are entitled to statutory benefits – sick pay, maternity pay, etc
- They can join the company’s pension scheme
- The company’s disciplinary and grievance procedure applies to them
- They work at the company’s address or another address specified to them
- Their contract sets out redundancy procedures
- The company provides the materials, tools and equipment for their work
- They only work for this business or if not their other work is a completely different job
- Their contract refers to “employee” and “employer”
Somebody is classed as self employed and not an employee if:
- They are in business for themselves, are responsible for the success or failure of their business and whether it makes a profit or a loss
- They can decide what work they do, where, when and how they do it
- They can hire someone else to do the work
- They are responsible for fixing any unsatisfactory work in their own time
- A fixed price is agreed for their work
- They use their own money to buy business assets including the tools and materials they use
- They can work for more than one client
A person’s employment status determines their rights and the employer’s responsibilities. It is a very confusing area and employers must be very clear about the employment status of an individual. If a self-employed person should have been classed as an employee the employer as well as the individual will be responsible for unpaid tax and national insurance contributions as well as the penalties which will have been incurred.
There is an employment status checker on the HMRC website where you can find out whether an individual is classed as employed or self-employed.
More and more individuals are becoming “self-employed” either by choice or by agreement with their employer. Perhaps both employee and employer believe this to be more cost effective or tax efficient but choosing to be self-employed denies you access to a workplace pension, statutory sick pay, and paid holiday whilst at the same time making you responsible for finding your own work, managing your costs and paying for your own training. And in addition HMRC might be checking whether you really are running a business and taking responsibility for the risks that that presents.