In IR35

A business law specialist has set out clear guidance for employers and contractors alike for safely engaging contracting professionals following a series of recent high-profile court cases which found against their designation as self-employed.

HMRC recently won a dramatic IR35 court victory which found BBC presenter Christa Ackroyd to be a “disguised employee” and liable for more than £400,000 in unpaid employee-level tax and National Insurance Contributions (NICs). Other rulings found that Pimlico Plumbers, Uber, Deliveroo and Addison Lee were engaging workers, not self-employed contractors.

The financial implications for employers and contractors who have fallen foul of radically reformed IR35 rules can be huge, with significant sums becoming due in unpaid employee tax and NICs. While currently confined to the public sector, most industry observers are expecting the new IR35 rules to be extended to the private sector in the near future.

In an article for the business news outlet London Loves Business, Karen Holden, founder of the London-based “A City Law Firm,” explains that after HMRC’s victory in the Christina Ackroyd case, it is highly likely that more organisations will be investigated over their contractual arrangements and the tax status of their staff.

She advises the following measures to ensure employers can safely tap the talent pool of the UK’s flexible contracting workforce:

  1. Ensure that all contracts spell out clearly the rules on substitution, level of control and who pays tax. The contract should also include an indemnity in the event of HMRC pursuing an employer for a contractor’s taxes.
  2. The contract should endeavour to ensure the employer is held harmless, as far as possible, with respect to tax implications.
  3. Employers should receive invoices from contracting staff and ensure that they have in place a clear project-based, hourly or daily payment system that would refute any suggestion that these individuals are actually employees.
  4. As a general rule, contractors should be required to carry their own professional insurances.
  5. Contractors should bring or rent their own equipment, not the employer’s.
  6. When work runs out or a project expires, the contract should be permitted to lapse or be terminated.
  7. Contractors should not be restricted from earning income elsewhere and should not be compelled to work solely for the engaging business.
  8. Engagers should not try to compel working times, uniforms or any other employee policies on contract staff.
  9. Contracts should be clear that no holiday or sick pay is included.
  10. Contracts should permit contractors to substitute themselves for someone else where appropriate.

Alternatively, although not mentioned by Holden, a safe option is to engage contracting talent via a reputable PAYE Umbrella Company.

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