Historically, HMRC have attributed little importance to the lack of employment benefits in determining IR35 status. Many contractors believe if they are not paid employment benefits and have no rights to them, they cannot be determined an employee. A valid point you might think, but in our experience of defending thousands of IR35 enquiries, this argument has failed to make a dent in defence of a contractor’s IR35 status. Conversely however, HMRC would tend to argue that an entitlement to employment benefits is a strong pointer to employment.
The whole issue surrounding employment rights has become much more prevalent of late, due to Matthew Taylor’s Report on working in the Modern Economy (published in July 2017), which discusses how to tackle the changing working patterns whilst still ensuring that workers’ rights are protected.
Debate over this issue has risen due to the growth of the ‘gig economy’, a platform way of working which has proved very popular for those wanting a more flexible working pattern. Such workers tend to operate on a self-employed basis and therefore receive no employment benefits. However, this way of working has been successfully challenged in the courts, with businesses such as Deliveroo and Uber having to pay compensation for employment rights.
Three recent First-tier Tribunal cases all refer to employment benefits having some part to play in employment status. In the high-profile case of Christa Ackroyd Media (CAM Ltd), who undertook work for the BBC as a TV presenter, Judge Jonathan Cannan stated that:
“She had no entitlement to sick pay, holiday pay, maternity leave, pension rights or other benefits. That was because the contract was with CAM Ltd. Such matters would have been subject to Ms Ackroyd’s employment contract with CAM Ltd.”
In the case of Jensal Software Ltd which was successfully defended by Qdos, employment rights were considered in the context of integration into the end client’s organisation, which in this case was the DWP, and it was stated that:
“As regards integration Mr Wells had no managerial responsibilities for DWP employees and the short contractual periods indicates that the Appellant was no more than an accessory required on an ad hoc basis. Furthermore no specific on-site facilities were provided to Mr Wells nor was he entitled to any DWP Benefits.”
It seems therefore that the issue of employment rights can be more important when considered alongside other issues such as integration within the client’s organisation. The issue is addressed within HMRC’s CEST tool and having recently tested this, if an entitlement to employment rights is indicated, the outcome is immediately stated to fall inside of IR35.
The issue over employment rights has likewise become controversial in view of IR35 reform in the public sector which was introduced in April last year. Contractors working in the public sector who are deemed to fall inside of IR35 by their end client have PAYE and NICs deducted at source, but still pay all costs associated with running their business, and receive no entitlement to employment benefits, even though their engager has determined them to be an ‘employee.’
HMRC’s consultation document on IR35 reform within the private sector (published 18th May 2018), made it clear that employment rights are not going to be considered in the scope of the consultation. A separate consultation document on ‘Employment Status’, following Matthew Taylor’s report, was published in February this year and is now closed. This is likely to be a long-term issue, but it is a concern which needs to be addressed swiftly regarding IR35 reform.
In a recent survey undertaken by Qdos Contractor, 89% of 1501 contractors said that they would want employment rights if determined to fall inside of IR35. HMRC cannot have their cake and eat it – if they want contractors to operate inside of IR35 and pay the relevant taxes, such workers should be given the employment rights they are entitled to as an ‘employee.’
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