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Guides: Employment Compliance

An Employer's Guide to Other Employment Compliance Issues

Employers' Guide Contents > Employment Status Disputes

2. Employment Status Disputes

Employment Status Disputes

Although it is normally quite clear as to whether individuals are in your employment or not, on occasion it may not be. For example some workers in the construction industry and those supplying consultancy services may wish to be treated as self-employed. But merely stating that one is self-employed does not make it so.

Legally the distinction between employment and self-employment is that the former is a contract of service and the latter a contract for services, which is not really of much help, and there is no other definition to be found in the taxing Acts. As a consequence there has grown up a formidable body of case law, from which certain indicators have emerged (‘badges of trading’) that when taken altogether in the round, in theory at least, enable a conclusion to be reached. But in practice it can be a difficult decision and open to challenge. In general the Revenue are keen to categorise workers as employees because of the larger National Insurance (NI) take, and thus seek to demonstrate that the contract is one of employment, while the individual seeks to demonstrate the contrary, that the service is provided by way of a trade.

Sadly, the responsibility rests wholly with the employer, not the worker, and if the Revenue are able to demonstrate, say following a PAYE inspection, that payroll should have been operated then the employer will be liable to make good all the PAYE, including both employer’s and employee’s NI, which should have been paid over. And in strictness there is no right of set-off against any tax the ‘self-employed’ person may have paid himself – it is up to the employer to get it back from the individual (if he can), although where the Revenue are satisfied that the income has been declared (and the tax paid), credit may be given.

A further potential hazard is the Personal Services legislation (commonly known as IR35) that seeks to disregard the ‘intermediary’ status of the service provider (whether in the form of a limited company or partnership) and treat (and tax) the individual as an employee. While the legislation has been none too successful to date, nevertheless it cannot be disregarded and problems can arise. It is particularly problematic in those industries where individuals are often engaged in connection with a particular project, typically through their own limited company, for a temporary but lengthy period of uncertain duration.

We can advise you with regard to such matters and assist in the event of any status disputes arising.

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Disclaimer

While we hope the above has been found to be useful it is intended only as a general guide, may not reflect the very latest developments in law, and cannot be a substitute for professional advice. We cannot accept any responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this guide.