According to tax experts, the fuss over the changes to off-payroll working scheduled for April 2020 is causing businesses to overlook their normal obligations to check employment status. Are you taking the necessary steps?

Off-payroll working

Long before IR35 existed HMRC frequently challenged the employment status of individuals who provided their services on a self-employed basis to businesses. Eventually, HMRC asked the government for a solution. IR35 gave it the power to extend its employment-status enquiries to individuals who worked for their customers indirectly, i.e. through an intermediary. The constant noise about IR35 , especially the April 2020 changes, is confusing businesses about their other employment status obligations.

New rules aren’t relevant

From 6 April 2020 businesses that aren’t small are responsible for checking the employment status of individuals who work for them through an intermediary (see The next step ). Until then it’s up to the worker to do it.

Trap. All businesses, including those categorised as small, remain responsible for checking the employment status of individuals who work directly for them and are liable for any PAYE tax and NI lost if they get it wrong.

Which workers do you need to check?

One way or another, all services are carried out by individuals but it isn’t necessary to consider the status in every case. There’s no regulation to tell you if you need to do this, rather, you need to look at the overall picture of your firm’s relationship with the individual doing the work.

Example. You have a contract with Bloggs and Co to do the bookkeeping for your business for which you pay a fixed annual fee. Every week Sunil turns up at your firm and spends a full day tackling all the bookkeeping and associated tasks. He occasionally misses a week if he’s on holiday. Sunil is the owner of Bloggs and Co. He employs other bookkeepers but they have never done any work for your business.

Trap. In the circumstances it might not seem that Sunil’s employment status is an issue. The trouble is, HMRC inspectors are apt to jump to conclusions on first impressions rather than consider the full picture first, and superficially Sunil might appear to be an employee.

To check or not to check?

Tax inspectors primarily look for whether you, the customer, control when and how the work is done and by whom. From their point of view it might seem that you control Sunil’s work as you would an employee because only he does the work which is carried out at your premises. It’s on the same day each week on your computers and using your software and you pay him a set amount for the job. The reality is that you specify none of these conditions as a requirement and you would be equally happy if the bookkeeping was carried out by Sunil or any one of his employees where and how they want as long as the job is done properly.

Tip. It might be clear to you that a worker is freelance, but look at the position as an outsider might – is there the appearance of control over the work and the worker? If so, prove the self-employed status by entering all the facts into HMRC’s check employment status for tax (CEST)tool (see The next step ) and keep a record of the result so you can deflect any HMRC enquiry before a tax inspector becomes entrenched in their view.

If you use the services of an individual working freelance, say a bookkeeper, you’re responsible for checking their employment status even if yours is a small business. Consider if someone outside your business could at first sight view the working arrangement as an employment. If so, use HMRC’s online status tool.

The next step

The CEST tool