Self Employment – are you really?

11th October 2018

The breaking news that HMRC is challenging ITV presenter Eamonn Holmes’ status as a freelancer in an investigation that could cost him up to £2 million, is the latest in a number of recent cases proving that determining your employment status may not be as simple as we would all like to think.

Mr Holmes may believe he is the “test case” but there is another journalist who will be following his case with interest. Christa Ackroyd, who used to present The BBC’s regional news programme Look North, was also employed through a personal service company (PSC). The use of a PSC means that tax payments are lower than if individuals are employed by the end user, in this case the BBC. This is because profits can be extracted via dividends rather than salary saving national insurance payments. Ms Ackroyd was not unusual in having such a contract; allegedly hundreds of the BBC’s talent are paid in this way.

In February 2018 the first tier tax tribunal found that Ms Ackroyd, was in reality an employee of the BBC and therefore not entitled to take her remuneration in this way. She was ordered to pay almost £420,000 to HMRC in income tax and national insurance (NI) contributions. Ms Ackroyd is appealing.

One of the key aspects of Ms Ackroyd’s case is whether IR35 applies. The rules known as IR35 were introduced in 2000 to stop workers claiming they were contractors when they were, to all intents and purposes, an employee. The question of whether a worker is truly independent when working under a contract between it and the end-client (irrespective of whether through an intermediary personal service company), has been and remains central to whether the worker falls outside IR35.

But it has not been all about home wins for HMRC.  Last month, Professional Game Match Officials Limited (PGMOL), the body that represents football referees in England, won a tax tribunal case arguing that most referees should be considered self-employed and entitled to pay a lower rate of national insurance. PGMOL successfully presented the case that, unlike in the Premier League, referees in lower division matches are not directly employed. These people have day jobs and can turn down requests to take charge of matches due to other commitments. The ruling sets a precedent for up to 30,000 football referees in England, as well as tens of thousands of individuals officiating in other sports. It also has implications for workers in other areas where rules imposed on them by a regulator may previously have been interpreted as an indication that they are employed.

One case which will have wide implications for the gig economy and the rights of independent contractors is “Pimlico Plumbers”. Gary Smith worked exclusively for Pimlico Plumbers for six years, and after suffering a heart attack requested a reduction in his working week from five days to three. His request was denied and he was dismissed. There are three tiers of employment status: “employee”, “self-employed” and, between them, “worker”. Although Mr Smith paid self-employed tax and was VAT-registered, the Court of Appeal ruled that he was a “worker” based upon his lack of control over the work, as he was contractually obliged to do a minimum number of hours work a week and did not have the right to transfer his work to a subordinate. The case went to the Supreme Court which in June upheld the decision to class him as a “worker” and afford him the appropriate rights such as sick pay and holiday pay.

All of these cases show how important it is that individuals and organisations are aware of the possibility that so-called contractors or freelancers may be found to be employees or workers in a tax or employment tribunal and the consequent risks of employment law claims or demands for income tax and NICs arrears.

They also reflect the growing demand for the government to bring forward legislation to help businesses clarify how to categorise their workforce.

In the meantime HMRC provides an on-line tool  for checking employment status for tax purposes and we, at Whittles are happy to discuss the issues from an accountancy and tax perspective with access to external legal advice if required.