Employment status and CIS post-Demibourne. By Rebecca Benneyworth

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The question whether someone is employed or self employed is a common source of concern, and is increasingly of relevance in all types of business. From April 2007, however, the new construction industry scheme will bring this issue centre stage. Contractors of every size will need to review the employment status of their workers for each engagement, as once a month they will sign a declaration that they have done so, and are satisfied that the workers are self employed.

Of course, those of us who have been around long enough know that this issue has been aired several times before, with a push on employment status in the construction industry. On several previous occasions we have warned clients that HMRC or the Inland Revenue as it then was, are in the process of clamping down, only for t...

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23rd Oct 2006 15:31

One more thing you might need to worry about
It seems not all payroll software, or payroll software suppliers, will be supporting the new CIS regime solely through payroll software. Some suppliers are expecting you to use their ledger software in conjunction with their payroll software.

This is odd when HMRC is giving Recognition to payroll software ON ITS OWN that they have tested and deem to comply with the new rules. See http://www.hmrc.gov.uk/ebu/cis-online.htm

This could mean some firms providing a bureau service to clients who use sub contractors may be forced to find new payroll software.

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By Anonymous
25th Oct 2006 12:16


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25th Oct 2006 14:01

The ESI tool is ineffective at best and just plain wrong at wors
Until this tool is sorted out to reflect what the law actually says, rather than what the Revenue would like it to say, we should not be advising our clients to use it.

Currently the predominant response being returned by the tool is that it cannot determine status, so gets us no further forward. Existing case law is quite clear that an unfettered right of substitution is inconsistent with employment status, yet the tool seems to ignore this fact and, on that alone, I for one would reject any attempt by the Revenue to impose this as the definitive tool for status.

Whilst the Revenue initially said they would be bound by the results there appears to have been a backtracking on this, judging from an article I read recently and I have also dealt with a case where the tax officer has refused to accept the tool's findings.

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By Anonymous
25th Oct 2006 15:44

needs to do something about the effectiveness of its tools.

I went into a tax office the other day and one was nodding off at the reception desk.

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27th Oct 2006 16:13

I do not think this case will worry contractors in CIS. The employment status in CIS has to be looked at for each contract the "subbie" takes on and not on the "contractor - subbie" overall relationship. Its not good enough for the Commissioners to say as the subbie was self-employed (employed) before and things haven't changed too much therefore the subbie's status will remain the same.
In fact in the Demibourne case it would appear that the handyman should have been self-employed right from the start. It is my view that the Commissioners should have looked at the facts of the present situation not of went on before.
So come on you self-employed, time to incorporate.

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28th Oct 2006 14:09

What a farce!!!!!
To quote HMRC...
"A worker’s employment status ... is not a matter of choice. Whether someone is employed or self-employed depends upon the terms and conditions of the relevant engagement."

"If you work for someone else, it is important to know whether you are working for that person in an employed capacity or in a self-employed capacity. "

"...there is no statutory definition of a contract of service or of a contract for services. What the parties call their relationship, or what they consider it to be, is not conclusive. It is the reality of the relationship that matters."

"it is then necessary to establish the terms and conditions of work agreed between the worker and the engager and, having completed this exercise, to apply case law laid down by the courts over the years. The basic approach of the courts is to identify the factors present; weigh those that point to self-employment against those that point the other way; and then stand back and consider the picture that emerges."

"What the parties call their relationship, or what they consider it to be, is not conclusive."

"Whether a worker is an employee or self-employed depends on a range of factors, but the final opinion is not reached by adding up the number of factors pointing towards employment and comparing that result with the number pointing towards self-employment. The courts have specifically rejected that approach.

It is a matter of evaluation of the overall effect, which is not necessarily the same as the sum total of all the individual details. Not all details are of equal weight or importance in any given situation. The details may also vary in importance from one situation to another.

When the detailed facts have been established, the right approach is to stand back and look at the picture as a whole, to see if the overall effect is that of a person working in a self-employed capacity or a person working as an employee in somebody else's business. If the evidence is evenly balanced, the intention of the parties may then decide the issue."

In other words ...

You must know whether you are employed or self-employed for each & every contract and regardless of what the contract says, or what you intend the relationship to be what we say probably goes. We will consider your intention as a last resort. It is impossible for you to work out with any certainty what we will say... in fact if you ask us it will depend on who you talk to and when (after all, "it is a matter of evaluation of the overall effect" and opinions do change)

... and by the way, you will be heavily penalised if you don't agree with us.

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30th Oct 2006 17:47

Employment status and Demibourne
Although Rebecca suggests that there were factors pointing to the possibility of self-employment it seems that the taxpayer and the company had entered into what they believed to be a contract of employment and I have little doubt that if the company had dispensed with his services before reaching the age of 65 he would have been happy to take action for unfair dismissal and would have won. It is interesting that the evidence presented for the "employer" streesed how self-employed he was, but in the commissioner's finding of the employee's own evidence "- He undertook all the general maintenance work for the hotel, including looking after the hotel's own sewerage system. He attended every day and worked regular hours; he was always on site during the day, so the hotel only needed to contact him by phone if there was an out of hours emergency. He had obtained a mobile phone in 1996 to avoid disturbance to his wife at home if the hotel phoned during the night. He worked from 8 am to 5 pm but had to stay to complete work if it had to be finished; he was often there until 6 pm."

So someone was clearly and correctly an employee before retirement age continues to do the same job on the same premises for the same hours on his own admission is self-employed? Rebecca suggests that "the employer was not permitted to employ him once compulsory retitement age had been reached" - not so - it was simply company "policy" and far from the "parties agree[ing] that he was self-employed the individual had asked at his leaving party when he was given a present if he could continue as an employee and was told that he could only continue on a self-employed basis. If you read the commissioner's findings [http://tinyurl.com/vonr7] I think you can see why the Commissioner felt he was an employee - consider this - "Before he was 65 he had had four weeks' holiday a year. He did not receive any holiday pay or pay for bank holidays from 1993 until April 2002. If he was going to be away he would tell Mr Patel and Mr Halstead. He disagreed with their evidence that he gave short notice of leave. He normally told them some days beforehand, as the hotel depended on him and it was not his character to give just a day's notice. Once he had been treated as self-employed, he felt that he could not afford to take holidays; he would love to have gone, but finance was a problem. He could have taken time off, but not without asking."

I'm sorry to sound off at some length but I have very little sympathy for an employer who seemed to set out to exploit a former employee fairly unmercifully to save 12.8% Employer's NIC. Thank God for the new age discrimination legislation which might help to reduce the incidence of this situation.

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26th Feb 2007 14:04

Dave - My Hero!
It's great to have your comments. Whilst most of the rest of us are limited to analysing the commentary on status cases, you're actually taking part in half of them.

I wonder how many accountants would have had the bottle to take on the MAL case, let alone see a strong defence (less than 1% I would guess)?

Before anyone starts pointing fingers, no I don't work for Accountax, nor am I on any sort of commission. I merely owe an awful lot to Dave for a half hour presentation he made a few years ago. I learned more useful information in that 30 minutes than I have learned in decades of CPD. Dave has managed to reduce the status issues to a simple elegance, which defies the Revenue's waffle.

Keep up the good work and thanks a huge bundle.

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23rd Feb 2007 08:39

what about MAL Scaffolding?
Rebecca's article fails to mention the most recent tax status case that concerned subcontractors - the MAL Scaffolding case - where Accountax successfully defended 29 scaffolders and labourers at the Special Commissioners and where HMRC were heavily criticised by the Special Commissioner. The workers concerned had no written contracts, had vans supplied, worked on day rates and many had been with MAL for years! But the court said they were all self employed. So it is not all bad news and with proactive representation self employment is not difficult to establish and preserve. - dave Smith - Accountax.

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