Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

Newth Talks Tax - Employment v self employment

by
20th Aug 2007
Save content
Have you found this content useful? Use the button above to save it to your profile.

Tax writer of the year John Newth solves your tax questions.

Employment v self employment

Dr Allen Lunn referred to an article by Rebecca Benneyworth regarding the job status of subcontractors. This article was slanted towards subcontractors in the construction industry. However, within the manufacturing and textile industries there are numerous subcontractors who work as outworkers. In some instances materials are supplied, for instance, a metal not available on the open market can be involved. A particular manufacturing organisation had been given clearance that the outworkers were self employed, but is continuing to make contact with HMRC. The Employment Status Indicator had already been used. Dr Lunn’s observation was that he could not help feeling that outworkers would be caught in the ‘employment trap’, particularly if a different tax office was involved (see 4 February 2007.)

This query elicited a bumper crop of replies. Martin Foley felt that the HMRC clearance already obtained was an important factor, although each case must be treated on its own merits. Lack of mutuality of obligation and financial exposure were factors that could help the self-employed case, and it may be important that the outworker is not given similar work every week.

Paula Sparrow emphasised that it is not HMRC which decides whether someone is employed or self employed. In order for employment status to be proved all three of an obligation to provide personal service, mutuality of obligation and control over the worker must exist. A poorly written contract does not help, and a proper contract for services, the provisions of which are fulfilled in practice will help the case for self employment. A good example of this is Hooper v British Railways Board [1998] IRLR 517. She also accused HMRC of clouding the issue over substitution and mutuality.

Paul Soper stated that judges were not unanimous about the importance of mutuality. The obligation to provide a personal service does not, on its own, prove employment. The real factor is control. He also suggested that even where a proper contract was in existence, such as in Cable & Wireless v Muscat, employment status can follow.

There was some argument between subscribers about Hall v Lorimer, the case involving a TV cameraman whose clients always provided the expensive photographic equipment that he used. Paula made the point that HMRC promote this as a leading case on status, but in fact the case itself exhibits a lack of a number of the ‘badges of trade’ deemed necessary to prove self employment. She also made the point that there was no written contract in the Muscat case.

All of this demonstrates that:

  • Employment and self employment are matters of (case) law, and HMRC do not have the right to determine the issue.
  • Each case must be considered on its own merits.
  • Much depends on the desire (or not) of the individual and the client to prove self employment. This may be time consuming and costly. Both parties must be united in negotiations with HMRC.

In practice, the client (the manufacturer) may want to avoid conflict with HMRC, and may therefore accede to HMRC’s assertions that employment exists. The downside of this for the manufacturer is that substantial employment rights then accrue to the individual employee.

There are two relevant cases about outworkers that are summarised in the HMRC Employment Status Manual at ESM7060 and ESM7110. These are both employment law cases where the tribunal determined employment status. The cases are Airfix Footwear Ltd v Cope [1978] ICR 1210 and Nethermere (St Neots) Ltd v Gardiner and Taverna [1984] IRLR 240. Obviously each ‘outworker’ case must be treated on its own merits, but HMRC might well take these cases as precedents in favour of employment.

Need to look back at a Newth Talks Tax? Click on the link below to access our Newth Talks Tax archive:

Newth Talks Tax Archive

Tags:

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.