Employers should be aware of the areas HM Revenue and Customs (HMRC) will look at when considering whether a worker is classified as self-employed or as an employee.
If an employer treats a worker as a freelancer or contractor when they are, in fact, an employee, HMRC could require the employer to repay any taxes due or charge a penalty.
There has been a focus on the issue of employers classifying workers as freelancers or contractors, and receiving tax and national insurance savings as a result, due to an investigation by the Committee of Public Accounts into public sector off-payroll arrangements.
The report found that 2,400 central government employees were benefiting from off-payroll arrangements, while the BBC had 25,000 off-payroll contracts, 13,000 of which were individuals that appeared regularly on its television and radio programmes.
The report found that, in particular, employees were being paid through an intermediary, such as a personal service company, a company owner and controlled by the individual, which meant the worker and organisation hiring their services through the intermediary organisation does not have to pay national insurance contributions, but instead pays corporation tax.
Mark Groom, tax partner at Deloitte, said: “If an individual wants to be self-employed they have to demonstrate substantively that they are, and have the look and feel of running a business on their own account.”
He added that HMRC will consider many issues, such as:
- Can the worker make a profit or loss on the job they are doing?
- Are they putting their own money at risk?
- Do they have control over when and how they work?
Groom added: “The various criteria can have different weighting depending on the nature of the role, and other criteria can also be important. For example, the right to send a substitute and actual substitution can be important.”