I posted some comments on HMRC's lax attitude towards self employment in the so-called gig economy on Twitter a couple of days ago. This was in the context of the Deliveroo dispute but there are so many employers it could relate to that they are just an example.
Let me be clear that the line between self employment and employment is not precise. HMRC says on the web that:
Someone is probably self-employed and shouldn't be paid through PAYE if most of the following are true:
- they're in business for themselves, are responsible for the success or failure of their business and can make a loss or a profit
- they can decide what work they do and when, where or how to do it
- they can hire someone else to do the work
- they're responsible for fixing any unsatisfactory work in their own time
- their employer agrees a fixed price for their work - it doesn't depend on how long the job takes to finish
- they use their own money to buy business assets, cover running costs, and provide tools and equipment for their work
- they can work for more than one client
I am, of course, this is not the last word on the issue because there is case law and much else to consider as well but it is, nonetheless a useful indicator. Many will follow these guidelines.
Let's put this into the context of delivery drivers given self employed status.
First, they're not in business by themselves; they are an integral part of someone else's business. And by and large they're paid a labour rate with income risk being based on a) work availability b) sickness or injury c) vehicle repair costs, which are unlikely to tip the equation. The first two are no different from many employment contracts in modern business (unfortunately).
Second, most work rotas on arrangements dictated to them.
Third, it is very unlikely that they can offer substitutes in practice.
Fourth, the chance of this happening is remote. Failed work will mean termination in these jobs, as it would in equivalent employments.
Fifth, there can be fixed prices but it appears minimum pay expectations over-ride these in many cases.
It is true a vehicle is provided at cost to the contractor - but this is not true of all equipment e.g, when uniform must be worn, as is the case at Deliveroo. And the equipment provided could anyway be paid for on a mileage rate, as is true of the many employees who also provide their own vehicles for work purposes, sothis condition is not conclusive.
Finally, it is rare that these contractors can work for more than one client.
Prima facie then how HMRC's self employment test is passed in many of these cases is very hard to see. So why are HMRC so regularly turning a blind eye to what looks to be widespread minimum wage and national insurance tax avoidance arrangements? Shouldn't MPs be asking the question?
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“Our riders are the life blood of our company, without them we have nothing,” – William Shu, CEO and Co-Founder of Deliveroo
So critical they won’t actually employ any!
Precisely
And the statement also proves they are employees: they are integral to the business process, as is obvious
The Revenue are being pragmatic here: if they take on a company using these contracts, the situation will be ‘resolved’ by the employer firing all the workers in question, and hiring-in substitute labour though a service company, who will have similar or worse employment practices.
Deliveroo are an unusual high-profile case where the workers in question are performing the company’s core business activity, rather than anciliary functions like cleaning, catering and security: I think that HMRC are right to go after them.
It’s not just the low-wage economy.
There are large numbers of white-collar workers hired as ‘freelancers’ on fixed-term contracts specifying exclusivity – work for other clients is explicitly forbidden – and a few where this is not the case: journalism being a visible example of the latter, programming (especially in the financial sector) being dominated by the former.
Some consultants thrive on it, and some freelancers are subjected to disgraceful exploitation: the key distinction being selling labour into a sellers market, or a buyers market.
That distinction is impossible for HMRC to capture in a consistent set of regulations.
HMRC could try but they are, as I say, pragmatic: they won’t crack down on this and drive the work offshore to Bangalore, depriving British taxpayers of their livelihood (and depriving us all of a somewhat reduced tax stream from ‘fauxlancers’)…
…Unless and until the big four patrons of the Revenue establish profitable relationships or subsidiaries providing an umbrella for offshoring labour.
So they then take on the service company
But they don’t
Because HMRC is deliberately under-resourced so that it cannot do so
taking them on thru a service company at this level of income comes has its own problems plus additional costs. service cos aren’t really worthwhile unless the earner is well paid. Richard is right as usual.
May I just question the wording here please:
their employer agrees a fixed price for their work — it doesn’t depend on how long the job takes to finish
Surely they are self-employed so there is no ’employer’?
I have a bit of experience with this area having worked as an IT contractor in the past and the IR35 rules that were brought in to catch ‘disguised employees’. The problem there was the ‘caught’ contractors had all the downsides such as paying both employer and employee NI, no sick pay, holidays etc and the burden of running a ‘business’ with the accountancy aspects and perhaps VAT as well depending on the turnover. Yes I know that a lot of those people get handsome daily rates (anything from about 200 up to thousands!). In lean times I also resorted to agency work where they deducted notional holiday/sick pay but you did not see any of that if the work stopped.
Thankfully I am retired now so can look on this with some detachment although I do feel for those forced to work under these onerous terms.
But they have got employers….that is my whole point
I totally agree that they are employees, it was just the wording. I thought it should say ‘their client…etc’ not ‘their employer…etc’. By saying ‘their employer’ it assumes that they are already in an employee/employer arrangement. Just nit picking, ignore if you wish.
There are local authorities I’ve worked at where hardly anyone in fields like finance, procurement, legal, project management etc is an employee.
Especially in rural areas where the skilled labour pool is small. They tend to be the best payers so it’s not about lack of money.
If HMRC wanted to crack down, they would have a field day. Problem is: the local authority wouldn’t have enough bodies to do the work.
Adrian
As with most things you say I take that with a considerable pinch of salt
Richard
See it for yourself. Rural counties and districts in particular can’t recruit. They’re stuffed full of interims making good money. £450 a day is nothing particularly special.
They can’t recruit because the alternative is available
It’s not rocket science, is it?
They want to recruit but don’t get the applicants. We’re talking about rural areas and some midsize towns and cities – not everywhere. I know Coventry had a lot of unfilled posts for a long time.
If you know what they’re doing wrong, please let me know and I will pass it on.
I work as an interim and could get a permanent job in 5 minutes but the lower pay and the tax situation doesn’t make it worthwhile.
The lower pay isn’t due to lack of money – they have the money to pay the interims. But complicated job evaluation processes and HR policies make it impossible to pay market rates for permanent posts.