News

Amanda Lathia examines off-payroll working rules following the news of Thomson Reuters freelancers in Employer News

  • March 02, 2020
  • By Amanda Lathia, Associate

This article was originally published in Employer News and can be accessed here

Off-payroll working rules – Employment legislation vs tax legislation

It is widely known that many ‘self-employed’ individuals, working exclusively for an employer enjoy lower taxation by paying themselves through their own personal services company (“PSC”) via dividends, rather than operating PAYE, as required under IR35 legislation.

This has not gone unnoticed by HMRC which is about to close the loophole by introducing the off-payroll working rules to the private sector for medium and large companies only. The rules require the end-user of contracted services to take responsibility for reassessing contractors. The end-user client company will need to notify their contracting party (the intermediary) and the worker of that status determination. The final party in the chain before the PSC must operate payroll, make deductions for income tax and employee’s national insurance contributions and pay employer’s national insurance contributions on the fees paid for the services. Alternatively, the end-user can place deemed ‘workers’ on their own payroll. Some end-user companies are opting for the latter solution because of the potential risk of being liable for back payments of income tax and National Insurance contributions. This risk arises if (i) HMRC decides that the self-employment is a sham, or (ii) the PSC does not account for tax and NICs, then in either case HMRC can go after the intermediary or client (or any other party in the supply chain) to recover the unpaid amounts.

In the case of freelance individuals working for Thomson Reuters (see FT article of 18th February), in order to keep the same level of earnings as self-employed individuals, they will need to show that they are in control of their day-to-day working lives. Factors pointing towards self-employment under tax legislation are similar to (though not the same as) the rules under employment legislation such as: the right of substitution; the ability to decide one’s own hours of work; how much leave one can take and when. If Thomson Reuters has overall control over the contractor’s working life and therefore deemed ‘worker’ status under tax legislation applies, then the off-payroll working rules will apply.

Confusingly, if an individual is reassessed as being a worker under tax legislation, e.g. via HMRC’s online CEST (“Check Employment Status for Tax”) tool, this does not automatically mean that he/she is a worker for the purposes of employment legislation. So worker rights – as fought for successfully by Uber drivers and workers employed by Pimlico Plumbers – will not necessarily apply to ‘workers’ who have been assessed under CEST. There is currently no case law on the ambiguities that arise between employment status for tax purposes and employment status for the purposes of workers’ rights. It is surely time for tax and employment legislation to be aligned and clarified in this respect.

Related News

Mar 11, 2020
Amanda Lathia discusses employment law changes from 6 April 2020 in Employee Benefits
Feb 18, 2020
Amanda Lathia examines partnerships and important factors to consider that will help navigate future challenges
Feb 14, 2020
Gregor Kleinknecht comments on new rules for copyright in the EU in IBA Global Insight
Feb 13, 2020
Amanda Lathia examines the increase in fines under the GDPR in Information Security Buzz
Nov 27, 2019
Amanda Lathia discusses firing employees over social media posts in HR Grapevine
Nov 27, 2019
Amanda Lathia comments on the Supreme Court case that led to Royal Mail employee’s dismissal in Personnel Today
Oct 23, 2019
Gregor Kleinknecht’s chapter on trade marks and design rights post-Brexit published in Winning with IP
Oct 17, 2019
Amanda Lathia comments on the Supreme Court employment ruling in favour of Judge Claire Gilham in The Times
Sep 18, 2019
Amanda Lathia discusses how the Gig Economy continues to shape the legal status of a worker in Employer News
Aug 20, 2019
Amanda Lathia and Polly Atkins discuss DSARs on the rise since GDPR introduced in 2018, in Lawyer Monthly

© Hunters Law LLP 2020 | Privacy NoticeLegal & Regulatory | Cookies Policy | Complaints Procedure

Hunters Law LLP is authorised and regulated by the Solicitors Regulation Authority (number 657218)