The Employment Status Legislation Crackdown
Wednesday January 4, 2017
If you're a long-term resident of the RIFT, you've heard our warnings about the dangers of the business jungle many times - and for the most part, we're talking about avoidable trouble from competitors or fraudsters. Once in a while, though, HMRC likes to remind us all who the biggest predator out there is. Every so often, it likes to make an example of someone - and it's looking to do it again very soon.
For a long time now, HMRC's been worried about what it calls "false self-employment". Basically, it's grown suspicious that a lot of businesses are ducking their responsibilities when employing people. A lot of their concern is genuinely about protecting workers' rights - but there's definitely a financial side to it. You see, the taxman believes that if even 10% of the UK's self-employed workforce can be reclassified as PAYE employees, it could grab itself an extra £1.5 billion per year in National Insurance contributions.
In chasing that money, HMRC is cracking down on businesses with largely self-employed workforces to see who's not been playing by the rules. Their targets so far have ranged from Uber and Deliveroo right up to the BBC. Companies ignoring the threat because they think they're "too small to bother with" could soon be facing a nasty shock, though. While the biggest businesses might seem like the most obvious ones at risk, they're also likely to be the most able to defend themselves. By picking on smaller, easier prey, HMRC could well be setting precedents for businesses up and down the country.
False self-employment is what happens when a company calls workers self-employed who really ought to be on PAYE. Sometimes, the workers come through an agency or umbrella company, at other times subcontractors become employees of their own "personal services companies" for tax and other advantages. In each case, HMRC has a strict set of rules that determine whether or not the workers are "genuinely" self-employed. For example, one of the big tests is whether or not there's a right to "supervise, direct or control" how the workers do their jobs. That's a broad and muddy set of terms, of course, and businesses are already getting bogged down in it.
Part of the problem is that the laws haven't kept pace with the way the UK does business. The legislation being used here is 2 years old - which might as well be ancient history given how much has changed since then. For instance, 2014 never foresaw the impact of the new "sharing", "platform" and "gig" economies - all of which are in the firing line now as HMRC launches more and more employment status challenges. The big danger is that some very uncomfortable case law will be set. All it'll take is one unprepared business to get badly hammered in a court, and suddenly HMRC has established new ground rules for everyone on how the self-employment game is played.
Looking at it from the other side for a moment, the picture isn't much prettier for workers themselves. On the one hand, those who have actually been wrongly classed as self-employed might get some rights and protections they didn't have before, That's great - but it's going to make businesses a lot less confident about taking on legitimately self-employed subcontractors who want to work in that way. Take the construction industry, for example. Right now, construction owes its survival to a mostly self-employed workforce. HMRC employment status challenges are going to hit them hard, as our free white paper from RIFT Legal Services explains. Take a look, to see RIFT Legal busting myths and giving practical advice on surviving the crackdown.