I have a client who owns a cleaning company who sub contracts out some work to her friend...her friend has registered as self employed and done all the correct things. My client has been told by her accountant that it's basically bit of a grey area...The sub contractor shouldn't work the same jobs each time and they should provide their own equipment/products. My client has the insurance in place for a sub contractor to work 52 shifts a year.
Can anyone shed any light on this?? I personally didn't know this information...and going on my clients previous work as a sub contractor she was not aware either.
Any help would be appreciated as ever.
Ben Dumbreck
-- Edited by Ben89 on Tuesday 21st of October 2014 08:16:01 PM
Have a look the HMRC Employment Status Indicator (ESI).. This is a useful free tool that can be used to check the employment status of workers and contractors.
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Yes a bigger problem than a lot consider as they are mostly burying their heads in the sand. I spoke to one lady who owned such a business who I met at a networking event - great lady but I almost had a row with her over the exact same thing. Ive also got an acquaintance who has his own business who so clearly is in breach of IR35 that its laughable that his Accountant is still saying its ok - anyway Ive warned him its not ok and that they are likely to catch up with him soon.
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Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Ben I would say this potentially could be a grey area, it is about employment status (Don't get worried about IR35 for your question) and there are guidelines on this but essentially it will depend on the weight of evidence, so the accountant is right to suggest that she uses her own equipment, products, varies her times etc. The fact that there is a contract in place possibly with a 'substitution of labour' clause and saying she takes the risk, i.e. if the work isn't acceptable it gets done again/put right at her own risk. All these things help in suggesting the friend is self employed (would be good if she did some other similar work on a self employed basis) but there is still the possibility of hmrc claiming she is employed. My guess is that if she was deemed employed your client would likely be told to pay her via PAYE from now on, however they would have the power to deem she was employed from the start and that her pay was net and therefore she would need to gross up and pay over the tax and NI due.
The HMRC deemed that cleaners where employees 20+ years ago. When this happened I had a client who had a number of office cleaning jobs in London, and when one of the companies she worked for, had a payroll inspection, the HMRC told the company that she was their employee not self-employed. I had to put a case forward and because I was able to prove:
1. She had several cleaning jobs with several companies
2. She had to supply (and pay) a replacement cleaner if she was unable to do the work herself for any reason
3. She had to supply her own cleaning equipment/products etc
4. She was liable for any breakages (she broke a employees cup when washing up and they charged her for replacing it).
the HMRC at the time agreed she could keep her self-employed status.
Since then, she no longer has several cleaning jobs (due to the Congestion charge, she can no longer do the cleaning in the evenings so stopped doing a lot of the work), but points 2-4 still apply with the cleaning job that she still does (early in the morning, before the congestion charge begins.)
She will be classed an an employee under IR35. This is not a problem for the (employee) to worry about any unpaid NI etc will have to be paid by the employer
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My gut feeling is without all the facts she is a employee and shoud be treated as such. unless she has quite a few clients and the contract is a water tight. As HMRC will look for any indication that she is a employee.
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The simple answer is the employment status test which is part of IR35. So my feeling on this she would fail the employment status test.
You are correct not to worry about it to much from the Employees side of things as long as she has not set up as a Ltd company. however, the employer may have to be concerned as if HMRC determine she is a employee the company is liable to pay back any deductions they should of made and certainly can not deduct the expense from a future payment made to the employee.
-- Edited by Energise Accounting on Monday 27th of October 2014 05:32:29 PM
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The simple answer is the employment status test which is part of IR35. So my feeling on this she would fail the employment status test.
I don't agree, you can't use the status indicator tool to determine whether you are caught by IR35, furthermore the fact that the employee is a sole trader means IR35 is of no relevance.
Energise Accounting wrote: however, the employer may have to be concerned as if HMRC determine she is a employee the company is liable to pay back any deductions they should of made and certainly can not deduct the expense from a future payment made to the employee.
I agree with this as per my original response.
I just think it's very confusing to Ben if qualified accountants like you are categorically telling him it's to do with IR35
As Ben is acting for the company who is sub contracting the work out i think IR35 is relevant. (unless i have missed something) The company sub contracting the work is taking the risks as Ben said he is acting for a company i assume he means a Ltd company.
The friend should complte the employment status check if she fails she shoud be treated as a employee otherwise it will all come back to hurt Bens client.
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Well it wouldn't be the first time I've missed something but to help fill the gap could you send a link where it explains that a company's IR35 status may be affected dependent on the type of worker they engage. I certainly have no argument that the employee/trader needs to look at the status test (Nothing to do with IR35 for her I think we both agree) as per my first response and 'Red Tape Doc's' useful link (Which has in its second paragraph a statement that it cannot be used to determine IR35). Thanks.
It appears you are correct Rob i had a word with the chap who handles our contractors and he said after reading Bens post, IR35 dose not apply. however, anybody who is classed as an employee by the employment status test should be treated as such so in a nutshell Bens client should get the worker to take the employment status test.
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It appears you are correct Rob i had a word with the chap who handles our contractors and he said after reading Bens post, IR35 dose not apply. however, anybody who is classed as an employee by the employment status test should be treated as such so in a nutshell Bens client should get the worker to take the employment status test.
Are these the tests that are being scrapped because no one uses them?
I think the employment status test is going to stand however, the article seems to relate to the business entity test
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HMRC recently announced that they are scrapping the employment status test as it it little used and its results cannot be relied upon.
I have been on a seminar which was run by HMRC and they told us that we should never depend on the employment status test, which we all found rather funny!
It is quite correct you should not depend on the employment test, the detail is in the contract which will ultimately determine a persons employment status. I have only 2 contractors on my books however, I just sub-contract the work out
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