Employed or self-employed?

A key part of the new regime will be that the contractor has to make a monthly declaration that they have considered the status of the subcontractors and are satisfied that none of those listed on the return are employees. The Revenue have decided to back this up with a penalty of up to £3,000 if contractors negligently or deliberately provide incorrect information.

Remember that employment status is not a matter of choice. The circumstances of the engagement determine how it is treated.

The issue of the status of workers within the construction industry is not a new matter and over the last 18 months the Revenue have been making substantial efforts to re-classify as many subcontractors as possible as employees. The courts have considered many cases over the years and take into account a variety of different factors in deciding whether or not a worker is employed or self-employed. The tests which are applied include:

• the right of control over how, what, where and when the work is done; the more control that a contractor can exercise, the more likely it is that the worker is an employee
• whether the worker provides a personal service or whether a substitute could be provided to do that work
• whether any equipment is necessary to do the job, and if so, who provides it
• the basis of payment - whether an hourly/weekly rate is paid, whether there is any overtime, sick or holiday pay and whether or not invoices are raised for the work done
• whether the worker is part and parcel of the organisation or whether they are conducting a task which is self-contained in its own right
• what the intention of the parties is - whether there is any written statement that there is no intention of an employment relationship
• whether there is a mutuality of obligation; that is, an ongoing understanding that the contractor will offer work and the worker accept it
• whether the workers have any financial risk.

As can be seen from the above, there are a number of factors which must be considered and the decision as to whether somebody should be classified as employed or self-employed is not a simple one.

Clearly, the Revenue would like subcontractors to be classed as employees, as this generally means that more tax and national insurance is due. However, just because the Revenue think that somebody should be re-classified does not necessarily mean that they are correct.

It is interesting that the Revenue are developing software to address this matter but the software appears to be heavily weighted towards re-classifying subcontractors as employees. It should not be relied on and professional advice should be taken if this is a major issue for your business. Please talk to us as a matter of urgency if you have any particular concerns in this area.

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