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Markel Tax

02 Jul 2019

Self-employed carers

The last year has seen a notable increase in the number of care providers looking to engage carers on a self-employed basis. This is hardly surprising - there are obvious tax and national insurance savings to the company by doing this, with individuals also benefitting from potentially higher rates and more flexibility.

There are, however, significant tax and employment law considerations to take into account first. Although it can be done, it’s not as simple as serving a notice to employees and re-engaging them as self-employed to do exactly the same work in the same way as they did previously.

Employment status is a minefield and great care must be taken to avoid not only the employment law pitfall, but also the potential tax consequences of not getting it right. If HMRC is successful in determining the individuals are employed for tax purposes rather than self-employed, the company in question will be facing tax and National Insurance for all payments it has made Tax and NI free to the individuals.

In order for an individual to be self-employed, it is not just a case of registering with HMRC as self-employed and producing an invoice. There is an established law on what determines an individual as self-employed.

Case law states that an employee is someone who provides personal service, is subject to control of their master and who is obliged to undertake work that their master is equally obliged to provide. These are the tests of Personal Service, Control and Mutuality of obligations. In simple terms, if one thinks of an ordinary employer relationship, the employer wants that person to do the work, has the right to tell them how to do it, and is under obligation to provide that person with work that the person must do.

For self-employed status, if any of those key employment ingredients are missing, the individual cannot be an employee. In order to provide the best protection, all three areas should be addressed. So, to engage individuals on a self-employed basis, it should be clear that:
  1. The individual is not required to provide the services personally. This can be achieved by providing the individual with a right to send a substitute (somebody equally skilled, of their choosing, in their place) to provide services.
  2. The individual is not subject to control as to how they provide the services and is free to decide their own methodology. This can be evidenced where services are more independent and require the individual to use their best judgment on how they complete it.
  3. The engager is not obliged to provide works and the individual is not obliged to undertake the work if it is offered. Once way of evidencing this is giving the individual freedom to accept or reject that offer without consequence.
It is extremely important that all contractual documentation and any additional policies reflect the same and reinforce the core self-employed principles. Any HMRC dispute over whether individuals are employed or self-employed will start with the contractual documentation. Therefore, substantial time and effort should be put into any contracts and documentation to ensure they are robust to stand against HMRC scrutiny. It is equally important that what is written in the contracts is fully demonstrable in practice - for example, it is no use having a contractual clause which allows substitution if, in reality, it would not be acceptable.

We are currently advising a large variety of clients on self-employed status across a broad spectrum of industries, and we have an extremely strong track-record of success in defending self-employed status against HMRC challenge.

If you would like a Markel Tax consultation regarding your team members who are self-employed, or for advice on whether hiring self-employed carers or staff would be right for your organisation, please contact Markel Tax on 0345 355 2228
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02 Jul 2019

IR35 Consultation: Our Response