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Employed or self-employed? How would HMRC class you?

Employed or self-employed? How would HMRC class you?

The government estimates that around one third of people working through a company in the private sector are not genuinely self-employed.

This is one of the statistics shared in the government’s factsheet related to its consultation on how to tackle non-compliance with IR35 in the private sector, which launched on 18 May.

According to HMRC, only one in ten people who should comply with its off-payroll working rules currently do so. That's because, when it comes to income tax purposes, a worker must meet certain criteria which determines if they should be classed as employed or self-employed.

On or off the payroll?

The IR35 factsheet shares two examples to help clarify the matter.

Alan, who would be considered as self-employed…

Alan is taken on by a manufacturing firm to design and build a new website for them. Alan and the firm have agreed a price for the job and when he will deliver the new website. Alan will mainly work at home, using his own equipment to complete the task. Alan is free to work for other clients but faces a contractual penalty if he doesn’t deliver the website on time, to the agreed standard. This represents a significant financial risk to Alan if he fails to deliver the final product, as agreed. 

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And then there is Jemima, who would be considered an employee and would, therefore, be affected by the off-payroll working rules

The manufacturing firm need someone to maintain and update the new website. They hire Jemima to work for three days’ a week, eight hours each day. The firm provides Jemima with a laptop, so she can work at their offices, or at home with their permission. She reports to the head of the firm’s IT department and must follow their style guide and format to update the website. The firm is responsible for providing and updating the software Jemima needs to do her work. If Jemima has to work longer than her contracted hours, she will be paid overtime. Jemima will be able to work elsewhere on the days she is not working at the firm, with their agreement.

Uncertain future

The government has stated that it hasn’t yet made any decisions on IR35 reforms in the private sector. However, change is widely expected. Many believe this could happen as early as April 2019.

One year since the off-payroll rules were rolled out into the public sector, and recruitment consultant Harvey Nash confirmed that 80% of contractors believe the impact of IR35 on the public sector has been “very negative.” Its IR35 Sentiment Report 2018 also found that 42% of contractors have increased their rates. This is to balance the cost of being caught within IR35 – compared to just 16% in 2017.

The consultation closes on 10 August 2018.

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