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Is the bell tolling for self-employment?

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15th Feb 2017
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In the last week, a court decision and a government inquiry both suggest that self-employment status is becoming an expensive anachronism.

Following recent decisions involving Uber and City Sprint, Pimlico Plumbers has become the latest utiliser of normally self-employed employees (that last word has been very deliberately chosen) to discover that their attempts to escape both employment and tax law might be proved ineffective.

Anyone reading the bare bones of the Pimlico Plumbers case would regard their contention that the individual was not an employee in everything but name as almost comical. If someone wears the uniform, drives the van (albeit hired) and is obliged to work at least 40 hours a week without the possibility of introducing a substitute or given the time constraints contracting with another organisation, how else can this work be categorised?

For those who work in the employment tax field, the news that HMRC had failed to attack an arrangement that was basically employment by another name is not a surprise, given its lack of resources and willpower in this area.

However, it does help to explain very cogently why a government-sponsored review led by Matthew Taylor is suggesting that full self-employment is costing the exchequer a staggering £4bn every year.

It looks as if it might be time for the gig economy to get on its City Sprint bike or hire an Uber cab to head for the hills before the taxman catches up with it.

Even if that takes time to hit home given the vast numbers of people involved, it does seem likely that employees will wish to take advantage of the recent legal decisions to attack those preventing them from enjoying legal rights to benefits such as pensions, holidays and sickness pay.

What should we conclude from these two complementary stories?

First, successive governments have taken far too long to realise that not only are they treating workers unfairly but they are literally losing billions of pounds for the privilege of doing so.

Next, while forensic accountants and dispute specialists might get a great deal of work as a result of these recent decisions, those that have become wealthy on the back of creating arrangements of this type might have to find a new business model in the very near future.

Finally, given the current emphasis on maintaining ethical standards and making professions look professional, one wonders whether our various institutes (and those governing lawyers as well) might need to start making pronouncements with regard to questionable tax planning in the current political climate.

Replies (8)

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By Eric T
15th Feb 2017 13:36

When did the expression "Self Employment" become prevalent. I tend to think it was HMRC themselves who promoted its use by officially naming the section of the Self Assessment tax return for those who ran their own businesses as the "Self Employment Supplementary Pages".

Prior to that, the more common term was "Sole Trading" - which, to my mind, gives a far more accurate picture of what the status actually is supposed to be.

I've never really understood how a person could actually "employ" themselves.

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Replying to Eric T:
By Ruddles
18th Feb 2017 09:19

What a strange view. People have been calling themselves self-employed for decades, without any reference to HMRC (sic). I remember my own father announcing to the family that he had decided to leave his job and become S/E.

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Replying to Ruddles:
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By Eric T
18th Feb 2017 09:50

I'm certainly not claiming that HMRC invented the term.

It's just that for many years the more accurate expression "sole trader" was used - especially amongst the more formal accounting and tax professionals.

The old technique for determining "trading" status was called "The Badges of Trade" - and that test is still used today in various versions and even forms the core of more recent "status" tests - such as IR35.

HMRC more or "legitimised" the term "Self Employment" by using it as their official definition of "sole trading" for their self assessment legislation.

I much prefer "sole trading" as it reminds people that this category requires that the individual is actually supposed to be operating a business i.e. actually trading in some way other.

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By justsotax
16th Feb 2017 14:30

would love to see details of the 'employee's P&L...wonder if he claimed use of home/spouse salary/expenses for travelling from home to 'work' etc. I also wonder what the pay rate was, was it significantly more than an employee on a similar contract. That of course doesn't clarify if he was truly self employed, but I am sure with the help of a solicitor he could see there was an opportunity to have his cake (get paid at a higher rate whilst claiming all respective expenses) and then get backdated holiday pay etc.

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Replying to justsotax:
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By Eric T
16th Feb 2017 15:08

All fairly irrelevant to determining his status.

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By David Kirk
17th Feb 2017 11:11

I can't agree with this analysis at all. Mr Smith in the Pimlico Plumbers case was found to be a worker, not an employee, which is a broader category and has no tax implications at all - workers are taxed in exactly the same way as the self-employed.

He did in fact take Pimlico Plumbers to the employment tribunal in the basis that he was an employee (as well as a worker), and lost that aspect of the case, both at first instance and in the Employment Appeal Tribunal. He did not appeal that finding to the Court of Appeal, which therefore did not have to consider it. So the Revenue have not lost anything here.

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By pauljohnston
18th Feb 2017 08:17

Staggering £4bn. Mr Fisher please if you are going to use figures in your offerings make sure you quantify them. This may look a big figure but it is tiny when compared with the sums raised through income tax and NIC.

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By johnjenkins
27th Feb 2017 14:12

The term "worker" originated from the EU and has been used by the self-employed to gain holiday pay etc. There is no such thing as a "worker" and the quicker we get rid the better.
In law there is no definition of employment status and it has been left t0 tribunals to decide each case on its merits. This is total nonsense. Since when has HMRC got the right to determine employment status or even challenge it. It is a commercial decision not a political one.
MTD(1/4 figures), Dividend tax, Mortgage interest depletion and IR35 will destroy the small business and watch the governments coffers empty pdq as the workforce decreases and benefit goes up..

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