All generalizations are false, including this one - Mark Twain.
False self-employment is back in the news courtesy of the Mirror's "Gizza Proper Job" campaign. The campaign was launched back in 2010 as an attempt to highlight what the Mirror termed the "exploitation of workers". The Mirror argues many workers are forced to present themselves as self employed rather than employees so allowing employers to avoid National Insurance and "deny workplace rights".
The campaign, which is aimed across all industry sectors, came hot on the heels of a HMRC consultation document on the same subject targeted specifically at the construction industry: False self-employment in construction: taxation of workers.
While HMRC's main concern was the risk to the Exchequer, the Mirror's campaign is targeted more at the loss of work place rights. As they stated back in 2010: "You might work for the same firm day after day, but if your boss has decided that you're self-employed then you'll be denied the most basic employment rights, even the minimum wage. And the practice is spreading everywhere, from call centres to cleaning jobs and taxi firms."
Both concerns are complimentary but given the nature of this blog we're going to focus on the tax side of self employed contractors which is notoriously convoluted. The main anti-avoidance provisions targeted at this area include:
· IR35 - Personal Service Company Legislation;
· MSC - Managed Service Company Legislation.
Self employed workers in construction also have to deal with an additional anti-avoidance provision in the form of the Construction Industry Scheme (CIS). And thrown in on top of both is the Case Law surrounding Contract of Service (employment) v Contract for Services (Self Employment) which, while it does define broad indicators, is tricky to apply in practice - hence the amount of case law.
All this complexity has basically led to an arms race between tax advisors and HMRC with ever more complex schemes entering the market (see Huitson v HMRC which used a partnership, Trust and intermediary with an Isle of Man twist for good measure). How the man on the street signing up to these schemes has any idea what he is signing up to is a mystery and this comes back to a long running gripe of this blog: in a self assessed tax system, how can the man on the street be expected to determine their tax position when the legislation runs to 12,000 pages.
The consolation document False self-employment in construction: taxation of workers proposed adding an additional round of anti-avoidance provisions to those above above, presumably because one can never have enough anti-avoidance.
The proposed tests were far too broad however and were swiftly shot down by commentators. With Labour's exit stage left, progress on self employed contractor taxation seemed to be shelved until the Coalition promised to look again at the matter and the notorious IR35 in particular. As we blogged back in March, we had actually hoped that the Chancellor would grasp the nettle and signal the end of IR35 but in fact all we got was a promise to ensure HMRC were more helpful in explaining when IR35 applies. As we also blogged back then, HMRC are not unknown to lose cases on IR35 and therefore are probably not best placed to undertake this role; the Courts are the guardians of the Law not HMRC (and it's worth remembering that HMRC guidance is not legally binding - see Gaines Cooper v HMRC for an interesting perspective).
So, having come full circle, where are we now? Well IR35/MSC/CIS all look like they are here to stay for the foreseeable future and the consultation proposals look dead in the water. But, and it's a big but, it would be incorrect to think this issue has faded from HMRC's agenda and even more incorrect to think HMRC do not possess a vast array of information on those they see as culprits. And of course, they happily confirmed to the Mirror last week that the £900 million in resources provided to combat tax evasion would also be available to tackle the issue of employees being passed off as self employed.
So watch this space.......
As we've blogged here previously, HMRC received £900 million in additional resources to combat tax evasion!