IR35 – employed vs self-employed status

15 August 2019

From April 2020, the rules about “off-payroll” working which have applied in the public sector since 2017 will also apply to most private sector businesses with exceptions for small companies.

This means that the “end-user” will be responsible for determining whether a self-employed contractor who provides their services through their own limited company is deemed to be an employee for tax purposes and, if so, will have to deduct income tax and NI contributions at source via PAYE.

IR35 employment status

The HMRC’s online status tool (CEST) can be used for this determination and HMRC are bound by the determination for tax purposes……however, it is important to note that this does not necessarily extend to Employment Tribunal judgments on worker status.

There have been a raft of recent cases concerning the “gig economy”:  judgments in the Uber, Pimlico Plumbers and Addison Lee Taxis cases all found that people labelled as self-employed were in fact workers for employment law purposes and therefore entitled to National Minimum Wage, SSP and paid annual leave. The decision in the Deliveroo case was that their cyclists were self-employed; however, Deliveroo decided to settle the case with the people concerned and so no appeal was ever brought.

The crucial tests to consider are:

  • Mutuality of obligation i.e. is the end-user obliged to provide work and is the contractor obliged to carry it out? In both the Uber and Addison Lee Taxis cases, drivers were obliged to take jobs when they were logged into the Company’s booking system.
  • Right of substitution i.e. would the end-user accept someone (equally qualified / experienced) coming and doing the job instead of the contractor?  The Deliveroo case referred to an “unfettered right of substitution” which had actually been operated on more than one occasion
  • Control i.e. will the contractor have control over the way in which tasks should be completed and in what timescale, or would those factors be under the control of the end-user.
  • Performing work elsewhere i.e. would the contractor have the freedom to work elsewhere or would the end-user require him / her to seek permission to do so?
  • Payment i.e. will the contract charge a fee and submit invoices or would the end-user pay an hourly rate through payroll?
  • Tools and equipment i.e. will the contractor provide his / her own tools, vehicle etc., or will they be provided by the end-user?
  • Integration i.e. would other people perceive the contractor as being an employee; would s/he be included on staff emailing lists, be invited to work social events etc?

Find out more

Our HR Solutions can advise on the status of individual engagements and, if it is genuinely one of a self-employed nature, we can provided a properly drafted Contract for Services; however, the contract by itself will not determine the status, it is the actual circumstances of the relationship.

To contact the HR Solutions team to find out how they can help with the employees of your business, please email: HRSolutions@mhllp.co.uk