HMRC tighten payroll rules for self-employed contractors

Have you taken reasonable care in deciding the status of the person providing their services to your business? Employers and engagers are under attack from all sides not least of all from the Employment Tribunals with very high profile businesses coming under scathing attacks from the Judges. In addition to any shortfall in tax and NIC have you considered the likely cost of back dated SSP, SMP, pension payments, redundancy and holiday entitlements?

Rules & regulations for the self-employed

A Menzies icon of a laptopUber is not the only business which engages numerous “Self-Employed” contractors and there will be many others that are rapidly and carefully reviewing their documentation, together with their working practices, to decide on which side of the employee/self-employed contractor divide they lie.

Once the Employment Tribunal and the higher courts of Appeal have decided if these contractors’ are in fact workers I would expect that HMRC will be hot on their heels to launch a series of challenges to the tax status of workers in the gig economy. This is despite, Government guidance making it clear that the employment law and tax law tests for employment are not the same, which is less than helpful for engagers. HMRC could have a field day without any need to ask parliament for changes or clarifications in the law.

So what can you do?

  • Put everyone on the payroll and give them full employment rights. Inflexible and expensive.
  • Structure the engagement contract and the engagement to ensure the status of the individual is clear, use the HMRC on-line Employment Status indicator tool as a guide! Initial administration can take time to set up, but you will then have  robust procedures in place in which HR and Finance can take comfort.
  • Engage everyone via an external agency and let them deal with the employment status position! Costly with the NIC and Agency fee usually being passed to your business.
  • Only engage people via their own Personal Service Company (PSC)! This only still works in the Private Sector but who knows for how long?

branded icon of notebook from menziesThe answer in practice will probably be a mixture of the above. There is no single factor which decides the status of an individual and a wide range of factors need to be taken into account including the actual circumstances of the engagement. For the highly skilled consultants paying higher rate taxes it may well be worthwhile for them to set up as a limited company, but for the lower paid individuals the administration costs may outweigh any tax savings available. We would strongly recommend that you review the status of the following groups as soon as possible rather than storing up potential huge liabilities for the future.

Consultants, contractors, sub-contractors (even where CIS has been deducted) Agency workers, Personal Service Companies, temporary workers, cleaners, non-executive Directors casual workers and anyone whose services are not paid for via the payroll and don’t receive full Employment rights and benefits.

Get in touch

Menzies would be very happy to assist you with a review of your current off-payroll arrangements and put in place robust practices and procedures to give you protection and peace of mind in the event of a HMRC review or a challenge at the Employment Tribunal.

Please contact Andrew Brookes in Menzies Employer Solutions or Ed Hussey or Karen Gibb at Menzies HR Solutions.

Find out more about Menzies employer tax solutions

Posted in Blog