A difficult question to answer as there is no legal definition of what constitutes an employee (who works under a “contract of service”) and a self employed worker (engaged under a contract for services”, meaning a business has to consider a huge amount of fact and fiction, case law, Employment Tribunal rulings, Tax Tribunal and Special Commissioners hearings and in some cases even more before really knowing if a worker is an employee or not.  The leading precedent case Ready Mixed Concrete (south East) Ltd v Minister of Pensions and National Insurance; dating back to 1968 still exists and its findings are still being applied by courts.

Businesses are often challenged by HMRC on the employment status of workers, which can be one of the most difficult enquiries a business will face. With the amounts of monies at stake often being significant, and often threatening the future survival for smaller businesses. The costs of an “employed” ruling can also in some circumstances make a business uncompetitive and unattractive to potential workers.

HMRC carry out status enquiries on a regular basis by Inspectors who are specialists in the particular field. A common industry sector targeted is construction, but any self employed worker engaged by a business brings a risk of challenge, including Directors who act as consultants to their own companies. As construction is a key area for Inspectors, businesses operating within construction are required to sign a monthly declaration stating that they have reviewed and considered the status of their workers.

Many people are ‘caught out’ by HMRC, as they are not aware of the difference between employed and self-employed, and there are no simple checklists to help. As a guideline however if you answer “yes” to all of the following, then it is likely that, at present, your workers are employees.

• Do you manage your workers day-to-day, including moving them from one task to another, and do you check and supervise their work while in progress?
• Do your workers carry out all of the work in person, or do they have to ask your permission if they wish to get someone else to do some or all of the work?
• Do you try to find new or additional work for your workers, or do you pay them when no work is available, and would you have to give them a period of notice (however small) if you didn’t want to use them anymore?

The above points will be able to give you a guideline, but there are many other points to consider, we would advise you to seek professional advise to be sure of the status of your employees.

Even where businesses have drawn up “self employed contracts” either themselves or with professional help, containing all the phrases and clauses that seem to “guarantee” self employment, they have still come under the scrutiny of HMRC, as Courts look at the realities of working arrangements instead of just written contracts. This can be seen in Weightwatchers (UK) Ltd v HMRC where there were inconsistencies between reality and paperwork, which led in part to a victory which cost the business a reported £23m.

As discussed there are many factors to consider with regards to employment status, we therefore advise to seek professional advice from those that specialise in this field.

Our team of experts can assist you in a variety of ways, including

• Reviewing any self employed workers currently engaged to provide a comprehensive opinion of their employment status
• Drafting and commenting on contracts, agreements for services, and similar
• Dealing with HMRC enquiries – it is vital to manage these correctly from the outset to maximise the chances of a successful defence
• Providing advice on changes to working conditions to support self employed status

Whilst there is extensive information available on HMRC’s website regarding status, much of this provides a simplistic or slanted view of employment status and legal precedents are only quoted selectively. Equally it is common misconception that just because a worker may be registered with HMRC as self employed that this confers that status on any and all work that they do. It is perfectly possible to be both employed and self employed at the same time.

This is a complex area of tax and employment law. Tax Tribunals are regularly making decisions on employment status which could have important ramifications for your business. WMT’s team of experts will keep you up to date ensuring that you and your business always know where you stand.

To discuss any of this information further, please contact Peter Davies on 01727 838 255.