HMRC routinely carry out checks into companies who engage self-employed sole traders. This may stem from a routine check, or may be a more targeted approach – the latter being a tactic HMRC have used extensively in recent years.
HMRC’s dedicated Employment Status and Intermediaries Team will be tasked with policing the engagers of all flexible workers, covering sole traders, IR35, and Onshore Intermediaries.
Once HMRC determine that there is a case to be answered involving status, they will mount an exhaustive challenge. The defence of such a challenge itself can be extremely time consuming and costly, with the potential for the case to end up at a tax tribunal.
Given the complexities involved in employment status, it is highly advisable for engagers to seek specialist representation in the event of any compliance activity from HMRC.
Engagers should be checking whether their workers are genuinely self-employed or whether they are actually functioning as employees.
Whilst there is no requirement for engagers to provide a Status Determination Statement like there is concerning IR35 status, that does not mean that the risk of employment status is any lesser.
Engagers of sole traders should go through the same risk assessment as is required of IR35. This means undertaking working practice assessments as regularly as possible, at least at the start of the engagement and once annually for longer engagements, and keeping a clear record of any evidence of a worker’s employment status.
When HMRC investigate employment status they use the same kind of employment status tests as are used for determining IR35 status.
As such, this leads to the query of ‘how can I check my employment status?’. It is vital that organisations maintain robust contracts, processes and policies around status. Actual working practices are also pivotal, so routine and regular checks into how things work in practice are also required.
At Qdos we understand the risk that employment status brings engagers, as such, we encourage all engagers to undertake audits of employment status where possible.
Qdos can also provide insurance policies to cover not only the costs of defending a employment status investigation, but also the potential tax liabilities.
For more information on what you should do to tackle your employment status risk and how we can help, get in contact with a member of our team.