Determining an individual’s employment tax status – wise up to employment legal rights too. It’s a joint gig!

13 January 2020

HMRC guidance on the most important factors in determining an individual's deemed employment tax status selects as key factors:

  • Personal service. In order for the engaged person to be an employee either for tax or for working rights purposes, they must be obliged to provide their services personally. For many cases the right to provide a substitute to do the work or the absence of that right can be an important factor and has been the determinant in some employment legal rights cases.
  • Mutuality of obligation. HMRC guidance states that as a minimum, in an employment relationship there must be an obligation on the part of the engaged individual to provide his or her work or skill and an obligation on the part of the engager to pay that engaged individual for that service. Employment legal rights assessments also see this contractual mutuality as a critical factor although it is less helpful in separating out the legal rights employee status from that of the legal rights worker status since it may often be present in both.
  • Right of control. To be a deemed employee for IR35 purposes or an actual employee or worker for an employment legal rights assessment, the engaged individual must be subject to a certain degree of control by the engager. This control may take the form of the way in which an engaged individual performs their services; what tasks have to be performed and when and where they must be performed.  HMRC considers for deemed employee tax status that it is the right of control that matters but employment legal rights judges also look for actual control rather than a paper right.

Two parallel bodies of (mostly) non-binding case law have grown up over the last 40 years or so as to employment status, one in the tax tribunal system and another in the employment tribunals.

Whilst the tax assessment of deemed employee status has had support from the Check for Employment Statue for Tax tool (CEST) for several years, which is now being updated by HMRC, employment legal rights assessors have had to navigate a considerable body of cases developing industry by industry. The Good Work Plan current legislative change product of the Taylor Review published in 2017 has, as one of its three main aims, greater transparency in employment legal rights. To assist, a currently-invisible proposed online assessment tool for employment legal rights is promised by April 2020. Can it be assumed this will be the CEST tool or a re-worked version of it and what will the status of its assessment product be in law?

Designing the post new IR35 workforce solution should not be looked at in tax isolation in order that an end user properly manages their risks. 

Instead the often-pervasive employment legal rights already in existence and likely to be created or transferred must be assessed and managed effectively to avoid future claims risk. 

A joint cohesive workforce structuring solution to the IR35 tax changes sitting alongside a full employment legal rights understanding will be sought by the wise business leader.

Key questions

What’s the employment legal rights status of any engaged individual working in your business via a PSC intermediary?

Is an engaged individual an employee of their PSC?

What’s the impact for employment legal rights purposes of deemed employee status determinations?

What employment legal rights risks are there by ending your agreement with a PSC?

Are you free to make a new direct agreement with an engaged individual or do they already have employment legal protections?

How can you manage any existing employment legal rights on an IR35 workforce restructuring?

Contact Carolyn Brown for more information on how you can prepare.

Understanding the contractual relationship between individual and end user client

In the next article, Carolyn talks about the contractual relationship between individual and end user client.

Read more