The three words that change everything in terms of the self-employed are supervision, direction and control (SDC). The reason is very clear. The new False Self-Employment law requires PAYE, including employers’ NICs, to be applied to payments made by an agency to someone who is self-employed unless that person has not been subject to any supervision, direction or control. The onus is on agencies to disprove HMRC’s presumption that SDC applies in all cases. But this is where the clarity ends.
That ‘control’ becomes so central an indicator of employment status takes us right back to 1968 when the courts found against HMRC in Ready Mixed Concrete Ltd v Minister of Pensions and National Insurance. As much as HMRC’s supporting documentation to ‘help’ agencies understand the definition of SDC for employment status purposes avows Ready Mix as the first case to highlight the importance of control when determining employment status, we have a different take on the court’s involvement. Even back then HMRC’s definitions of self-employed were not fully appreciated, resulting in the mislabelling of workers as falsely self-employed.
However, even with a legal legacy that has struck fear into the hearts of compliant agencies, sometimes reducing them to inertia, rather than them risking breaking the law when trying to get contractors into works, HMRC still believes in its authority across the full spectrum of self-employment. This is demonstrated by virtue that these new Onshore Intermediaries regulations supersede case law and leave the water so muddy that that a workable compliance framework will likely have to bashed out in the legal courts once again.
Let’s look at how muddy the water actually is for those agencies trying to swim the currents of change.
Let’s start with employed or self-employed?
Most people in work are employees – but you can be in work and be self-employed. It all depends if you work under a contract of service or a contract for services. There is no statutory definition of either. In order to determine the nature of the contract you have to apply common law principles.
That these contracts don’t have a legal designation makes the entire process of applying new laws to govern abuse around them time consuming for lawyers and a minefield for those of us in recruitment. And it just gets worse.
Control freaks
If an agency is clear that the criteria that loosely delineates self-employed have been fulfilled, mostly around mutuality of obligation, integration, economic relation and control,then they need to convince HRMC. But only using the definition of SDC as follows:
“Supervision is someone overseeing a person doing work, to ensure that person is doing the work they’re required to do and it is being done correctly to the required standard. Supervision can also involve helping the person where appropriated in order to develop their skills and knowledge.
“Directions is someone making a person do his/her work in a certain way by providing them with instruction, guidance or advice as to how the work must be done. Someone providing direction will often coordinate the how the work is done, as it is being undertaken.
“Control is someone dictating what work a person does and how they go about doing that work. Control also includes someone having the power to move the person from one job to another.”
But don’t think that a straightforward application of these definitions is all that is required. There are some legal nuances that agencies need to be aware of in the translation of these definitions. Mostly these are around the words
implied and rights of
in terms of supervision, direction and control. It is up to agencies to recognise even when the reality of the situation on the ground demonstrates that a contractor is working on a project without any SDC, if it can be shown that this control is implied, or the contractor has a right to it then all of the other criteria become redundant and they are not self-employed.
To turn the UK’s recruitment agencies into legal experts there is a 19-page book that provides a range of scenarios that agencies can use when trying to mount their defence to HMRC. What happens to UK PLC as our industry cohorts become our learned legal friends is anyone’s guess, but at least there is some small consolation in that that by using our recruitment talent HMRC is probably better placed to understand what for so long they have never defined.
