At the recent HR Network roundtable event, an interesting discussion took place regarding the use of self-employed consultants.
The experience of those around the table was that in a lot of cases it is convenient for both the end-user business and the individual providing consultancy services to engage in this way. The business avoids issues associated with employment rights and the consultant benefits from the tax-efficiency of the arrangement. Although both parties may be happy with the arrangement, and in that sense this scenario differs from the series of cases relating to the gig economy, that does not mean that the situation will not be scrutinised by HMRC.
If HMRC deem that there is an employment relationship for tax purposes, HMRC will seek to recover the unpaid employment tax from the deemed employer. Who the deemed employer is will depend on how the parties have contracted – e.g. whether the consultancy services are provided via an intermediary, such as a personal service company, and whether the deemed employer is in the public or private sector.
The recent experiences of the public sector (in particular a high profile case involving the BBC) should be viewed as wake-up call for the private sector that consultancy arrangements and off-payroll working are likely to come under increased scrutiny from HMRC.
What should you do?
With this in mind, both businesses and individuals operating as consultants should review their current arrangements. They should assess the risk of a deemed employment relationship and take steps to minimise the risk that they may face an unwelcome request for unpaid employment tax.
Posted on August 7, 2018