The concept of a ‘disguised employee’ continues to be a source of discussion in all kinds of circles: accounting and taxation; HR and employment law; and indeed politics (when Brexit takes a backseat for just one second!). ‘Disguised employees’ is a term used by HMRC to define workers who are supplying a service to a client on a business-to-business basis, most commonly in the form of a limited company, when they are effectively operating as an employee of that company. The tax avoidance associated with this led to the introduction of IR35.
IR35 tax legislation, which was introduced in 1999, is designed to combat the associated tax avoidance of Companies not paying National Insurance on behalf of an individual for example. From 6th April 2020, the off-payroll working rules, which already apply to public sector organisations, will apply to businesses of a certain size in the private sector and this is likely to amplify the level of discussion on ‘disguised employees’.
The ‘Key Indicators’
There are key ‘indicators’ which determine if the organisation and the individual are operating inside or outside of IR35. With the support of Gravitate HR, we can draft bespoke, robust documentation and, even more importantly, advise on the practicalities of IR35 to ensure that your organisation is on solid ground when engaging with self-employed contractors.
- Control: The extent to which a client controls where, when, and how an individual operates. This includes:
- Indicating that the contractor will be supervised by a line manager;
- Including work start and end times, and even break times;
- Including ‘staff’ perks (such as holidays and sick pay)
- Substitution: A contractor has the right to provide a reasonable substitute to carry out the work.
- Mutuality of Obligation: Even if a formal agreement has been entered into and signed, the Company is not obliged to offer work to the contractor; nor is the contractor obliged to accept work if it is offered.
- Provision of equipment: Does the contractor use their own equipment or is it provided by the Company?
- Financial Risk: The Contractor should be responsible for their own business affairs.
- Basis of Payment: Self-employed people are often paid by the job, rather than a fixed hourly/daily rate, and would not go through payroll.
- Exclusive service: The self-employed are traditionally recognised as having multiple clients.
It’s important to note that not all of these points need to apply for someone to be considered as an “employee in disguise”; by the same token, however, some of the above points can apply but the individual will still legitimately be recognised as a contractor. Contact a member of our team for further advice and guidance.