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Employees and Contractors

The opportunities and pitfalls of employees and contractors

When Her Majesty’s Revenue Commissioners are disappointed, it usually means that a great many people are happy.

HMRC is recently said it is “disappointed,” and is considering an appeal, after a tribunal judge ruled that TV personality Lorraine Kelly was not an employee but was self-employed.

In 2016, Ms Kelly was landed with a £1.2 million bill for tax and PRSI when HMRC found that she was an employee of ITV, and not a freelance contractor, as she had maintained.

Judge Jennifer Dean found Ms Kelly’s contractual relationship with ITV “was a contract for services and not that of employer and employee”. It was noted that Ms Kelly remained free to carry out work elsewhere, and she did not receive sick pay, holiday entitlements or other benefits which employees typically receive.

The question of whether you are an employee or a contractor is not just one which affects television personalities. Self-employed building subcontractors, who are working largely for a single contractor on a building site, often enter into that grey area, where the HMRC could argue that they have become an employee.

As the gig economy grows, an ever-greater number of professionals now need to consider whether they are in fact contractors or employees.

Those employing freelance staff also need to be aware that workers whom they are treating as contractors can gain employment rights, in certain circumstances. If employers fail to recognise this, they will be breaking the law.

HMRC’s decision as to whether a worker is an employee can have a big impact on tax liabilities, and a worker’s ability to write off expenses against tax. Even if your contract specifically says that you are not an employee, the HMRC will nonetheless look at the wider picture.

UK government advice says that a worker is likely to be self-employed if most of the following apply:

– they put in bids or give quotes to get work

– they’re not under direct supervision when working

– they submit invoices for the work they’ve done

– they’re responsible for paying their own National Insurance and tax

– they don’t get holiday or sick pay when they’re not working

– they operate under a contract (sometimes known as a ‘contract for services’ or ‘consultancy agreement’) that uses terms like ‘self-employed’, ‘consultant’ or an ‘independent contractor’

However, the position is rarely clear-cut. Both workers and employers would benefit from a better understanding of the nuances of the definitions used to determine whether a worker is an employee or a contractor.

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