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The government look to crackdown on bogus self-employment

15th Sep 2015
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The Citizen's Advice Bureau (CAB)  have estimated that over 460,000 workers in the UK are in 'bogus' self-employment, costing the government a substantial amount in under paid tax and National Insurance contributions.

There appears to be a great deal of confusion in regard to employment status, as the number of people visiting the Citizen's Advice Bureau (CAB)  is increasing as they attempt to find out whether they are actually self-employed or not. Workers with the correct employment status will benefit from basic protection that they are entitled to which means that they will receive the National minimum Wage as well as holiday pay.

Around 75% of those people who get in touch with the CAB in search of advice regarding self-employment are satisfied with their status according to a new report from CAB. The number of clients who visit CAB who were not sure of their employment status is on the increase which could result in them missing out on legal protection associated with employee status.

Around 500 clients were surveyed, all of which are self-employed and the results show that 10% of them were likely to fit the legal tests in place for employment status. Those who took part have a minimum of three markers which implies that they are not genuinely self-employed and this matches the tests that are used in the  employment status indicator tool which is released by HMRC.

For those individuals who claim to be self-employed could find that they are actually £1,288 a year worse off in holiday pay and were actually paying around £61 more in National Insurance contributions, something they would not have to pay if they were labelled as being employed. For those who are incorrectly classed as self-employed, the UK Exchequer loses on average, around £300 per person, whilst those businesses classed as responsible are at a disadvantage when other businesses class their workers as being self-employed.

UK law does not currently define Self-employment and only a judge involved in a dispute can determine what it is. For tax reasons there are separate tests carried out and these help to decide whether a worker should be enrolled automatically into a workplace pension scheme that is suitable for them. The HMRC takes a number of factors into consideration such as the control the worker has over the work undertaken and when it is carried out, whether they should supply their own equipment and whether they are able to request that someone else attends to carry out the work in place of them.

There are many areas of the law that are related to self-employment that are shrouded in mystery, however, any action that the government may take in an attempt to offer clarity in relation to the rules who have to consider the actuality of working in the modern-era.  In recent years  businesses  have altered the way in which they engage with the workforce as both seek to find more flexible arrangements, especially with the help of zero-hours contracts.

A number of sectors within the economy are seeing businesses behaving unscrupulously as they use self-employed status to escape from having to give the workers the protections that comes with full employment status, however, there are those instances where individuals would prefer to be self-employed. This could be down to tax reasons or simply because they want to work more flexibly and for more than one employer. Therefore, any changes made to the law have to take into account the fact that both parties can benefit from flexible working.

The legislation put in place to find those who are in disguised employment, also known as IR35 is currently under consultation by HMRC. The aim is to improve the understanding of the issues and look at the options regarding reform with one suggestion stating that the onus should be put on companies to ensure that contractors and freelancers are aware of their employment status.

There is a belief that HMRC would look favourably on a reform of the rules and the tax authority estimated that the exchequer will £430 million this year due to non-compliance with the IR35 rules.

Javeed Baig is Managing Director and Senior Accountant at Gower Accountancy, Chartered Accountants in Leicester.

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