taxation


New tax laws hit the self-employed


New tax laws designed to crack down on individuals classifying themselves as self-employed are set to hit businesses supplying contract labour. What’s more, recent case law and a forthcoming government review into employment practices mean that navigating the already complicated law relating to self-employment is as complex as ever. Guy Guinan, employment partner at law firm Gateley plc, looks at the latest changes in the law, and the dichotomy faced by the Government


According to the Office of National Statistics, more than 15% of the population is self-employed.


However, HM Revenue & Customs believe that many abuse this status to take advantage of favourable tax arrangements. It estimates that abuse of the IR35 legislation applicable to “personal service companies” (individuals supplying their services through their own limited company) costs £400 million in lost income tax annually.


The IR35 legislation was introduced 10 years ago to combat so-called “false self-employment.” It requires a hypothetical question to be asked: if the individual was contracted directly to the end user of the services (rather than via their limited company), would that individual be deemed an employee of the end user? PAYE must be applied to the fees paid by the end user by the limited company if the answer to the question is yes.


IR35 changes from April 2017 mean that when supplying to a public sector client, the client – or an intermediary business where applicable – must consider the above question and is liable to account for PAYE as if the individual was its own employee.


The fallout has already begun as limited company contractors turn their backs on public-sector work, with a skills shortfall becoming a real risk. The shift in risk for PAYE liability will make public-sector clients and intermediaries necessarily cautious in assessing IR35 status. Costs may well be driven up as the contractors insist on maintaining take home pay to undertake assignments, putting more strain on the public purse. In due course, it is widely expected that the legislation will be applied to the private sector too.


Of further concern is the lack of alignment of the UK tax and employment laws. An individual can be ‘employed’ for the purposes of IR35, yet self-employed with regard to employee rights.


So, whilst subject to PAYE tax, a contractor will not necessarily enjoy any of the benefits of employment, such as paid holiday, sick pay, minimum notice and discrimination protections.


The murky waters of employment status are complicated further by the emergence through legislation of a ‘worker’. All employees are workers, but not all workers are employees. A worker falls somewhere in between. The key here is who is in control of the individual. An intermediary may engage with a contractor on a PAYE basis, but because control rests with the end user client contractors are not classed as workers.


Workers share some rights with employees, such as holiday pay, minimum wage entitlement, auto- enrolment pension and discrimination rights. Unlike employees, they have no protection against unfair dismissal or maternity leave rights.


While some people try to maintain self- employed status under IR35, others have been claiming worker status under employment legislation. In late 2016, apparently ‘self-employed’ drivers operating via the Uber smartphone app in London asked the Employment Tribunal to determine their status.


They were found to be workers, with rights to holiday pay and national minimum wage.


The decision affects the estimated 40,000 Uber drivers in the UK. For Uber (and, indeed, other gig economy


THE BUSINESS MAGAZINE – THAMES VALLEY – FEBRUARY 2017 businessmag.co.uk 25


businesses, such as Deliveroo or City Sprint) the cost implications are huge, and Uber is appealing.


As seen above, UK laws on categorisation for tax and employment rights are complicated. The economy undoubtedly needs a flexible workforce, particularly heading into Brexit, yet the IR35 changes and the Uber decision seemingly curtail flexibility. No doubt many Uber drivers were and remain quite happy to call themselves self-employed and to forego employment rights.


Last November, the Government commissioned the Taylor Review to look into the growth in non-standard forms of employment and the potential of eroding basic employment entitlements and rights. The Office for Tax Simplification has also issued a paper focussing on the tax treatment of those working in the gig economy.


It remains to be seen what comes of that, but undoubtedly recent developments make life harder for businesses, just at the moment UK plc is heading off into the fog of Brexit.


For more information see details below.


Guy Guinan


0118 9577312 guy.guinan@gateleyplc.com


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44