The development of the ‘gig economy’ has rarely been out of the news in the last year. There have been widespread changes to the way in which large sections of the population work. It is a move to short term contracts and freelance working. Recent cases have ranged from the likes of Uber and Deliveroo to Pimlico Plumbers going to court to decide whether the people they engage with are self-employed, workers or employees.
For many individuals, setting oneself up as a contractor, often via a ‘personal service company, has been a better way of working. Skilled IT workers and TV personalities, amongst many others, have found that working in this way has provided both flexibility and tax benefits, saving income tax and national insurance.
At the other end of the spectrum, the trend also covers zero hours contracts, agency working and practices which have at times appeared exploitative of less skilled workers.
The move transfers risks onto workers. Under a traditional ‘employment’, the employer was at risk of incurring excess costs if they had a downturn in demand – now it is the workers who carry that risk.
A more flexible approach can still be of benefit to either or both parties and there are cost savings to be made which can also be shared. How the costs and benefits have been shared in practice, and therefore whether or not it is viewed as being exploitative, has more often come down to the respective bargaining power between the ‘worker’ and ‘employer’.
The Taylor review
A major review into working practices, the Taylor review was published last year. The government has committed to implementing almost all of the recommendations in the report. There are currently consultations open (until June) on:
- employment status
- agency workers’ recommendations
- measures to increase transparency in the UK labour market
- enforcement of employment rights recommendations
Substantial changes are unlikely before 2019; however, implementing changes to working practices takes time and so businesses should keep this under review.
The tax angle
The rise of self-employment has also in part been fuelled by the tax system, with the self-employed often paying lower rates of tax and national insurance.
National minimum wage and pension auto-enrolment has had an impact here, with businesses facing wage cost pressures they have been looking for ways to cut costs.
In reaction to this, we have seen moves by HMRC and pressure from government to bring more people back within the ‘employed’ category, thereby minimising the loss of tax. HMRC is also responsible for policing national minimum wage regulations.
With all of this activity, businesses should anticipate a continued major focus on employment status and minimum wage compliance in the coming year.
Employed or self-employed?
It isn’t just big businesses that have to consider the question of whether the people who work for them are really employees. Examples of situations that can give rise to unexpected employment status (with all of the reporting obligations that brings) can include the nanny looking after your children through to a director of a company providing consultancy services on a ‘self-employed’ basis.
If you have any concerns over whether someone who works for you is really your ‘employee’, then please see our factsheet and get in touch with your usual PKF Francis Clark contact for advice and information, should you require it.
Though there are many variations, the route to self-employment for many has often been to incorporate a ‘personal service company’ (PSC – essentially a one man company) to contract to do roughly the same work the individual always did. The individual worker becomes a company director and shareholder and can take money out of their company at tax rates more beneficial than those applying to employees.
The famed IR35 is actually the number of the HMRC press release that first publicised legislation designed to tax the use of ‘intermediaries’ – primarily this is aimed at personal service companies.
Simplistically, if the personal service company were removed from the arrangement and the individual remaining resembled an employee, then the intermediary company will have to operate employment tax.
However, IR35 is self-assessed and highly complex. Few taxpayers have therefore assessed themselves to this extra tax and, up until now, we have seen few challenges as it can be difficult for HMRC to pick up on.
However, we are now starting to see cases brought against taxpayers using these structures, the most high profile of which has been the BBC presenter Christa Ackroyd, with perhaps 100 of her colleagues also under investigation. This trend is certain to accelerate following HMRC’s success in court.
There have been significant moves to limit the use of PSCs. Previously, if the legislation was found to apply, then it was up to HMRC to pursue the PSC. That started to change in 2017. Now if the engager is a public sector body, it is for the public sector body to determine whether IR35 applies and, if it does, to operate PAYE and NIC on all payments. This transfers the risk from the individual onto a large organisation, making it much easier to pursue. The engagers have proven to be much more likely to be cautious when they might have to meet the tax cost and we are seeing a decrease in the use of these structures in the public sector.
As this appears to have been a very successful initiative by the Government, we expect to see announcements to roll it out to the private sector over the coming year.
National minimum wage
A recent list published by HMRC shows how easy it is for employers to make mistakes, with 179 employers being fined for underpaying their employees. The list includes a range of employers in a range of industries, from large national chains through to small individual businesses.
What the list doesn’t tell us is how these underpayments arose. Although some employers may have simply paid incorrect rates to their employees, a lot of the underpayments arise due to the complexity of employment legislation.
Employers can inadvertently underpay employees by simply making deductions through the payroll or requiring employees to provide specific clothing or equipment to allow them to work. Recent high profile cases have included Wagamama and TGI Fridays. Wagamama has a requirement that staff wear black jeans or skirts to work to match their company-supplied T shirts – in the case of TGI Fridays it was black shoes.
They were both found to be paying their staff less than the NMW because stipulating items of clothing made these a ‘uniform’ requirement. Because staff had to supply part of their own uniform, this reduced their pay and they failed to meet the NMW requirements as a result.
Despite the dress codes being very broad, this still gave rise to a NMW issue and serves to illustrate how the regulations are about a lot more than just how much is paid and how easy it can be to fall foul of them.
Our expert Business Advisors can help you navigate these tricky waters.