• HMRC vows to crack down on use of freelance staff

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  • 20 Oct 2016
  • Comments 5 comments

Specialist team will target employers suspected of avoiding national insurance

HMRC has announced it is to form a specialist team to examine working practices at organisations that use freelance staff to fill what amount to full-time roles.

Employers that persistently use office-based freelance workers to cover what would otherwise be full-time positions avoid offering individuals any of the associated benefits of full-time employment, such as sick pay, pensions and maternity leave, as well as avoiding employer national insurance contributions (NICs).

If an organisation is found by HMRC to be in breach of existing laws, it could be fined up to 100 per cent of the tax owed. The Treasury said it is currently owed more than £300m in lost national insurance contributions.

It is unclear how widespread the practice is, although the creative and technology industries are the most likely to be affected. The crackdown comes at a time when HMRC is taking a renewed interest in the use of ‘umbrella companies’ to pay staff, and other unusual working arrangements that circumvent NICs and other taxes.

Taxi-hailing app Uber and food delivery service Deliveroo are also in the midst of legal cases over the status of their workers, who are currently classed as self-employed, with a tribunal decision on Uber’s case expected imminently.

Alexandra Mizzi, senior associate at Howard Kennedy, said she believed the practice of using freelance staff is becoming increasingly widespread. She said: “Research suggests that 9 in 10 new jobs are described as self-employed, some of which genuinely are self-employed roles. But it does appear that some businesses are hiring staff whose working arrangements are indistinguishable from full-time employment, yet they are treated as having fewer employment rights.

“This is a real challenge for regulation because some workers are attracted by the independence and flexibility of the gig economy, but others are finding it impossible to find secure employment.”

Matthew Rowbotham, a tax, reward and incentives partner at Lewis Silkin, said there was an obvious advantage for employers using such arrangements. “Often, the engaging company is trying to maintain as much flexibility as possible – for instance, by retaining the ability to dismiss people easily,” he said.

HMRC’s move ought to be broadly welcomed by employers, added Rowbotham: “Those that take a very cautious approach when hiring their own staff, but are aware of competitors using dubious practices to reduce tax and compliance costs, will just want a level playing field when it comes to recruitment.”

Rowbotham said he believed publicity around HMRC’s plans meant some organisations were likely to change their behaviour. “It’s likely that employers will examine their hiring practices and maybe take some existing ‘freelance’ staff on to their payroll as proper employees to reduce risk,” he said.

Mizzi, however, suspected many employers would “wait to see what comes out of the HMRC action and review their arrangements and contracts to improve their chances of staying on the right side of the line.

“The law in this area is complex and often unclear, so at present some businesses take a calculated risk. If the crackdown is well-resourced, that may change the risk profile for these businesses and ultimately change the way they operate, but I doubt there will be a kneejerk reaction.”

Prime minister Theresa May recently announced a review of workers’ rights, amid concerns that almost half a million Britons could be wrongly classed as self-employed. The review will look at whether the national living wage is being undermined, and what changes in legislation may need to be implemented as a result.

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Comments (5)
  • This is not about the employee at all, it is totally about revenue, hence HMRC being the body to crack down. Everyone will end worse off financially, costs will go up for customers, projects and the tax payer will end up paying higher costs for public sector projects.

  • This is a particularly challenging area in the creative arts industry, one I have recently joined.  It would be good to link up with HR specialists in this area - so if you are interested please get in touch.

  • This has been happening on a wide-scale basis for many years, from window fitting companies to financial services. The tests to measure whether your actually self-employed or not are quite straight forward. Do you decide yourself what hours you work? Do you supply the materials and carry the risk, do you have your own offices/premises etc? Do you work for and invoice a variety of companies or individuals? is all your contract work/free-lance work for just one company? Do you take the business risks, ie, if anything goes wrong is it your responsibility to pay for any mistakes? Do you decide how many days/weeks/months holiday you can take and you decide when to take them? If you can. If you answer no to these questions then you are probably not self-employed, or a free-lance worker....

  • I'm confused by the repeated reference to 'full-time' roles within this article. This implies that treating part-time workers on a freelance basis is OK. Surely its not about the hours per week that is relevant, rather the nature of the contractual relationship that matters most?

  • Research has the number at 20% of the working age population.