Jan Post, Managing Director of RIFT Group, writes:
HMRC is already starting to show its teeth in a single-minded drive to eliminate what it thinks of as “false” self-employment. There’s a misplaced sense of calm about this right now, primarily due to the length of time cases take to work through the system and the fact that many are getting settled early before going to a full tribunal. Despite this, the time to start taking the threat of employment status challenges seriously is here. At some point, probably not too far from now, an unprepared firm is going to be made into a very public example by HMRC. It may not be your firm, or even your industry that gets hit – but if it goes badly you’ll be feeling the impact through the case law that judgement sets for years to come. RIFT has got the employment status terrain well scouted, and we’ve released a free white paper to help companies prepare and protect themselves. In the meantime, here’s what you need to know right now.
The first thing to realise is that there’s a lot of bad information going around already. High on the list of myths is the idea that HMRC won’t have the muscle to push their challenges though, or that individual firms will be too small for them to bother with. In fact, HMRC has already taken on 1,000 new caseworkers specifically to handle status challenges. It’s not that hard to understand why they’re so motivated to crack down, either. According to their own figures, if they could convert just 10% of the UK’s self-employed workforce to PAYE, they’d net themselves £1.5 billion a year in National Insurance contributions alone!
Smaller firms thinking they’re not worth HMRC’s time are clinging to a false hope, too. While everyone’s expecting a high-profile target to take the first or largest hit, the reality could be quite the reverse. A smaller firm would make, in many respects, an easier target right now. They’re less likely to be well prepared, less able to defend themselves and any case law that arose from the challenge would be just as valid going forward as if they’d tackled a much bigger fish. In an industry like construction, marked by a high population of smaller companies and a largely self-employed workforce, HMRC is likely to see a classic “target-rich environment”.
Here’s another myth: far too many companies are under the impression that it’s the employee’s responsibility to determine their own status. In reality, there’s no washing your hands of this. If HMRC decides to make a challenge, it won’t matter what your industry is used to, or what your employees believe. The determination is entirely in the tribunal’s hands. As for proving that your workforce is self-employed, some industries are going to find the criteria virtually impossible to satisfy. Again, construction provides a clear example. Demonstrating that your company should not be employing the workers is an uphill battle; in some cases, it might simply be an unwinnable one.
Again, the biggest danger here comes in the form of an ill-prepared company getting ground up in the gears of the system while the case law is still being established. HMRC is going to be keen to get the legal precedents on its side early, so it’s going to require cross-industry “herd immunity” to make sure everyone’s protected.
As I’ve noted before, we’re still really only seeing the tip of the iceberg here. Part of the problem is that the case law HMRC’s leaning on is being dredged up from many years ago, when the business world was, frankly, a very different place. The rise of the “sharing”, “gig” and “platform” economies is impacting many sectors in unpredictable ways. Outdated and not always relevant case simply isn’t keeping up with the pace of change we’re seeing. For example, while HMRC only officially recognises 2 different employment status categories, there are actually others in a grey “worker” area where people receive contracts and a few rights without being technically employed. Developments like the gig and sharing economies just aren’t factored into the existing rules – and who can even guess at the new ways we’ll have of working 2 years from now? Even the Office of Tax Simplification seems to be drawing (and firing) nothing but blanks on some issues, as their own words demonstrate:
“Employment status is a complex and wide-ranging subject that many have said has no real solution – and that if we did manage to ‘solve it’, we should immediately move on to world peace as we’d clearly be on a roll.”
The sad, borderline-terrifying fact is that defending yourself against a status challenge is by design a tall order – one that could easily end up costing hundreds of thousands of pounds with no guarantee of a happy ending. The combination of uncertainty in the case law, the sheer aggression of HMRC and the persistent myths among employers is a highly toxic one. The white paper RIFT is making available is a complete run-down of what the situation is, why it’s happening and what you need to do about it. We’ve poured over 40 years of combined expertise into it, and produced a clear, practical survival guide for one of the biggest challenges ever faced by companies in the construction industry and beyond. Where there are myths, we bust them. Where there are safe paths to walk, we’ve mapped them out.
Download our White Paper
Produced in partnershi[p with Construction News this white paper provides all the practical advice you need to successfully withstand the scrutiny of an HMRC employment status investigation, avoid unnecessary liability costs and enjoy the sense of security that comes with the knowledge of full compliance.