Firm guilty of ‘false self-employment’ braced for tax bill

Employment status, Tax

Tribunal highlights importance of employment status compliance

A sole trader has won an employment tribunal that could have far-reaching tax implications for businesses that engage self-employed workers under the wrong employment status. 

In an employment tribunal heard in March 2021, self-employed worker Gemma Long, took technology company, Brain in Hand, to court after seeing her work dry up due to her disability. 

The situation occurred when the company denied her request to have a support worker assist her with administrative tasks – work that Mrs Long found difficult to complete due to her ADHD. 

Brain in Hand informed Mrs Long that she couldn’t share her log in details with anyone else and despite exploring other options, no support worker was appointed. 

The court notes state that “the reason for this was that, once she (Mrs Long) asked for a support worker as a reasonable adjustment for her ADHD, she was not offered any more work.”

As a result, Mrs Long successfully claimed unlawful deductions from wages and for holiday pay from Brain in Hand, which provides services to people with autism, mental health difficulties and neurological conditions. 

 

Where was this case won and lost?

Having analysed Mrs Long’s contract – which was classed as self-employed with an hourly rate of pay – tribunal judge, Judge Ayre, concluded that it actually reflected a contract of employment.

Overall, the following factors led to this decision:

Mutuality of Obligation (MOO) – there was an obligation for Mrs Long to work, with Brain in Hand retaining the right to terminate the contract if she was unavailable for work for more than two weeks in an eight-week period. This contributed to a picture of employment, not self-employment.

Control – it was clear Brain in Hand controlled the working relationship, in the way that an employer controls an employee. For example, Mrs Long had a line manager who dictated the work that was undertaken and she was also measured against KPIs in monthly reviews. Her work as a ‘Brain in Hand Specialist’ also had to be delivered within a strict framework. 

Personal service – Mrs Long couldn’t delegate or arrange for anyone else to carry out the services she was engaged to deliver, which meant there was no right of substitution, which can be crucial in demonstrating a genuinely self-employed arrangement. 

The above are considered the three key employment status tests and also factor heavily in IR35 determinations.

 

Where does tax come into the equation?

While the headlines focus on the discrimination faced by Mrs Long, not to be overlooked are the tax implications of this case for Brain in Hand.

The Judge deemed that the contract held between Mrs Long and Brain in Hand Ltd reflected employment, not self-employment. Put differently, Brain in Hand facilitated what’s known as ‘false self-employment’. 

It means the business is liable for missing Income Tax and employers’ National Insurance Contributions (NICs) – tax that should have been paid for the duration of the time Mrs Long was engaged by Brain in Hand. 

 

Businesses urged to take note

As our CEO, Seb Maley, explained to Personnel Today, engaging an individual on a self-employed basis when the contract and or working practices reflect an employed relationship, poses a big risk to businesses:

“If a business engages someone as self-employed when in reality the relationship reflects employment, HMRC will expect the company to stump up missing employment taxes, which can mount up considerably just for one worker. 

“So it goes without saying that for any business engaging or relying on sole traders, the cost of enabling false self-employment is potentially huge, both financially and reputationally.

“Against the backdrop of Uber, Addison Lee and numerous other gig economy employment tribunals, it’s becoming important that both parties are confident in their employment status compliance and agree upon it from the outset.”

To hear how Qdos can support your business with employment status compliance, please contact us by emailing info@qdoscommercialservices.com or calling 0116 478 3390.

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