The definition of employee versus self-employed is an age old debate. As the market for services has radically evolved so has the nature of the modern worker, in relation to not only hours of work but also due to the increasing anonymous nature of the service and delivery markets. How has the government and HMRC begun to respond to these changes?
IR35 and ‘the worker’
Many individuals operate through a limited company or a personal service company, invoicing other entities for their services via the corporate entity and subsequently draw profits from the company as they see fit. HMRC have previously enacted legislation, known as IR35, to counter arrangements where an individual operates through a personal service company and provides his or her services to one company. This legislation counter acts circumstances where the arrangement is identical to an employee and employer relationship, apart from the intermediately personal service company.
The terms worker and self-employed individual have evolved via secondary legislation (case law developed by the courts). The following considerations are relevant to but not limited in determining status:
- Control and supervision
- The availability and rights of substitution
- Mutuality of obligation between the parties
- The responsibility for providing or using equipment
- Contractual terms specifically agreed
- Use of premises and specific intentions of the parties
The Taylor Review
The government commissioned a review of employment status following concerns of exploitation in today’s labour market. Self-employment continues to be a concept that is not defined by primary legislation and therefore existing case law continues to define this term per the principles established in case law. The Taylor review, first published in July 2017, recommended that self-employment should be defined specifically via direct primary legislation.
Following this review the government intends to legislate on the existing employment status tests which define ‘employee’ and ‘worker’. This is an ongoing debate with many different parties joining in the consultation.
Legislation is proposed to define the circumstances when an individual is ‘in business on their own account’ and refine the tests which determine whether an individual can be regarded as a worker. It is hoped that the new criteria can be built on existing tests as detailed in the paragraph above with new examples to reflect modern day working practices and businesses.
The intention behind the proposed changes are to protect individuals from unscrupulous employees leading many to believe that rules could be tightened to determine that fewer individuals are regarded as self-employed and greater numbers of ‘workers’, who benefit from certain rights such as holiday and sick pay, will be defined.
The focus of the changes would be to look at the concept of ‘control’. It is hoped that the government will be able to enact these changes in a balanced and fair manner which will not compromise those who are legitimately self-employed.
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This article was published in June 2018 – please be aware that the information above may have changed in subsequent months. This note is written for the general interest of our clients and is not a substitute for consulting the relevant legislation or for taking professional advice.