Time to get ready for the journey ahead

05 July 2018

The whiff of change is in the air for any business that relies on the use of a flexible workforce, whether self-employed or through a personal service company (PSC). As well as HMRC’s increased focus on National Minimum Wage (NMW) compliance, Government scrutiny and recent high-profile legal cases on worker status have brought the issue to the fore and momentum will only build in the months to come. Now is the time for businesses to act to understand the potential risks they face and how they can best be managed ahead of changes taking effect.

Worker Status tested in court

Those in the transport and logistics sector will be well aware that there have been numerous cases concerning employment rights or individuals claiming "Limb(b) worker" status i.e. not an employee, but someone with rights to National Minimum Wage, holiday pay and pension contributions.  These individuals are winning in most cases although there have been some exceptions.

The latest worker case (Pimlico Plumbers) was heard at the highest level, the Supreme Court, with judges agreeing with the lower courts' decisions that the individual concerned should be treated as a Limb(b) worker.  

The Good Work Plan

The numerous legal cases were set against the backdrop of the Good Work Plan, a Government review into modern working practices. Among other things, this suggests making it easier for businesses and individuals to determine employment status for tax and legal purposes, by introducing legislative tests or codifying case law or having the presumption in tribunals that the individual is a worker.

For years, businesses engaging large parts of their workforce on non-employed terms were concerned about the impact of being deemed employees by HMRC - principally a big PAYE and NIC bill.  Protecting their position against HMRC means that Limb(b) worker status risks may have been overlooked.

We expect the responses to the recent consultations under the Good Work Plan to shape policy in this area, with legislation following in 2019, and in the meantime many more cases being brought before tribunals.  

IR35 in the private sector

For many years, businesses have managed their tax and NIC risks associated with contractors by engaging them through their own limited companies, but this may be about to change.  Under “IR35” rules, if a contractor was deemed to be an employee of a business, the PAYE/NIC due as a result would rest with the contractor's company, not the engaging party.

Since April 2017, public sector bodies have been responsible for assessing whether IR35 applies to contractors they engage, and accounting for PAYE/NIC if it does.  The Government is now consulting on whether to do the same for the private sector, with the potential for rule changes to take effect from April 2019.

This will be a very significant shift for businesses using limited company contractors and our experience of the impact on the public sector suggests that some organisations may struggle to cope at the outset.  The engagement of contractors will need to have tax front and centre, with the potential for increased costs including employer's NIC charges in respect of individuals deemed to be employed.

What do this all mean?

Matthew Taylor, the author of the Taylor Review, predicts that the combination of cases, IR35 and new legislation around employment status will mean a shift away from businesses engaging individuals on non-employed terms.

In the meantime, businesses need to:

  • look critically at the composition of their workforce and how they are engaged
  • determine the extent to which they use non-employed labour
  • assess the terms on which individuals are engaged
  • understand the risk of individuals being deemed workers for legal purposes and/or employees for tax purposes

Our combination of tax and payroll experts together with employment lawyers mean we are well placed to help you navigate these important changes, and we have significant experience of the practical difficulties employers face across all these areas..

If you would like to learn more about what we can do please do contact me or your usual PwC contact.

 

John Harding

John Harding | Partner, Employment
Profile | Email | +44 (0) 7801 042 607

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