With less than a year to go until IR35 hits the private sector, some large corporations – most prolifically so far, HSBC – have released plans to stop engaging contractors altogether. Others, however, are doing quite the opposite. Over the pond, Amazon appears to be taking on as many contractors as they possibly can, plus offering incentives to encourage employees to make the jump.
If the same scheme crosses the pond, the retail giant could face hefty IR35 repercussions.
Why could Amazon be an IR35 target?
Amazon is as high-profile a company as it gets. Whether it’s tech launches, new headquarter location shopping or the founder’s eye-wateringly expensive divorce, the online retailer is rarely out of the news. The company has also been famously criticised for the amount of corporation tax – or lack of – that it pays.
Initially reported on by Recruitment Grapevine, it was only a matter of time before the news that Amazon is promising up to $10,000 (£7,900) to US workers who make the jump from employee to contracted delivery driver was picked up.
As well as the large cash incentive, Amazon has pledged to drop its demand that the Delivery Service Partners (which would be the official title of the contracted drivers, should they make the leap) have at least $30,000 (£23,000) in liquid assets to be able to accept the job. Additionally, the new contractor will receive three months gross pay upon swapping their contract of employment for a contract of service.
While IR35 doesn’t apply in America, it certainly will should the same incentive come to the UK. Should an employee make the change to contracting, and there is no fundamental difference in the role, they'll fall inside IR35. Consequentially, they’d be charged National Insurance Contributions (NICs) and income tax whilst losing employee benefits like sick pay or a pension scheme.
The scheme also raises questions about how these contract drivers will sit within the gig economy and how the contractors themselves will be treated by Amazon after accepting the tempting surface benefits.
What is Amazon risking by offering the contractor incentive?
Amazon’s proposed way of hiring contractors raises some red flags.
Andy Vessey ATT, Head of Tax and resident IR35 specialist here at Larsen Howie, says Amazon would be opening itself up to employment lawsuits should they offer the same incentive scheme to their UK workforce.
“U.S employment and tax laws differ to the UK, so a business model that may fit and work in the States is not necessarily going to be as effective this side of the pond,” states Mr. Vessey. “If, therefore, Amazon was minded to ultimately offer the same sort of deal to its UK workforce, then they would have to consider the risk of leaving themselves open to future claims by workers to certain employment rights by reason of being a ‘limb’ worker, a version of self-employment recognised by employment law but not tax law.”
“This harks back to the Supreme Court’s ruling in Pimlico Plumbers, in which Gary Smith was able to successfully claim his status as an employee. There have also been a number of other, less high-profile, cases of gig economy workers, such as Uber drivers and Deliveroo couriers, making similar successful claims.”
Why should Amazon employees offered the contractor incentive be wary?
While Amazon’s contracted drivers should be able to carry out deliveries for other companies, that is likely not to be the case in practicality. The contractors should also be able to dictate their own working hours, only take on the deliveries they want to do, and decide for themselves what order to carry out the deliveries in.
The vans used by the contractors will probably be branded by Amazon; a true contract driver would have to supply and maintain their own vehicle, the cost of which would be included in their fees as an overhead.
If Amazon doesn’t allow the drivers control of their own schedule, the freedom to deliver for other companies and the use of their own vehicle, then the contractor could be classed as a disguised employee instead. When the aforementioned Pimlico Plumbers worker won the right to be considered an employee, a strong argument for Mr. Smith’s case was that he was required to drive a branded van and to wear a uniform while carrying out work.
Is Amazon’s incentive a practical way of taking on contractors?
Andy Vessey highlights that while many employees may take up the incentive offer and make the jump to contracting initially, it isn’t practical as a long-term strategy.
“Aside from the gig economy angle, there would be definite tax repercussions,” Mr. Vessey comments. “It seems presupposed that all workers would immediately incorporate their businesses but there would be no tax incentive for doing so, given that fees paid to such workers are at the lower end of the pay spectrum.”
“Nevertheless, whether a worker were a sole trader or working via their own PSC, Amazon could leave themselves open to a PAYE tax and NIC risk (from April 2020 for PSCs) if the working conditions were not fundamentally different from when the workers were members of staff.”
“Where there is a change in employment status, HMRC will always look at the motive for doing so; simply incentivising someone to becoming self-employed when the facts don’t support the move just won’t work.”
Additional IR35 notes
A genuine contractor, freelancer or consultant who is in business on their own account shouldn’t have anything to worry about when it comes to IR35. However, contract reviews are always advisable; whilst you may know that they're legitimate, IR35 determinations are notoriously subjective.
Should you want some peace of mind, we offer a full contract review amongst other services to help you prepare for IR35. We’ll give a pass or fail based on the current contract you hold, along with comprehensive comments on how to improve any problem areas.
We also offer IR35 investigation representation from our Head of Tax and resident IR35 expert Andy Vessey ATT should it go to tribunal.
For any further information or advice, please call us on 01163 800 400 or drop us an email. Alternatively, take a look around our Knowledge Hub for more IR35 advice, industry news and contractor guides.