UK companies could face a slew of legal action from freelancers who have been classified as workers for tax purposes but not given any rights, after a contractor won her case against Her Majesty’s Revenue & Customs (HMRC).
Marketing and business development consultant Susan Winchester lodged a claim at the Central London Employment Tribunal for £4,200 (US$5,484) in unpaid holiday against HMRC and four other parties earlier this year. She argued it was unfair that she was being treated as a worker for tax purposes but was not given crucial workers’ rights in return.
Under IR35 rules, which were introduced in April 2000, freelancers who work through a personal services company for a third party – and would be employees if not for this arrangement – are required to pay tax and national insurance as if they were employees.
Initially, contractors decided for themselves whether they believed IR35 applied. But in April last year, the law was changed to require public sector organisations to determine the tax status of their freelancers instead.
HMRC engaged Winchester’s company, SJW Marketing Solutions, in September 2016 to undertake marketing services. When the tax rules changed in 2017, HMRC analysed the relationship using its Check Employment Status for Tax tool and determined IR35 should apply. As a result, Winchester was moved onto the agency’s payroll.
Therefore, Winchester argued that, as she was now deemed an agency worker, she should be entitled to holiday as if she were an HMRC employee. The parties settled on the morning the tribunal was due to start.
Chris Bryce, chief executive of the Association of Independent Professionals and the Self-Employed (IPSE), which funded and backed the legal action, told Contractor UK: "Susan's case sends a very clear message to clients, that if you are going to treat contractors like workers, then you’ve got to give them worker entitlements. You can’t just decide someone is inside IR35, shunt them onto an agency payroll and expect someone further down the line to pick up the tab for your obligations like holiday pay."
An HMRC spokesperson told People Management: "In general, in deciding if the off-payroll working rules in the public sector applied, HMRC would consider a number of factors, including how the engagement worked in practice, as well as examining the contract itself."
Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.
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UK companies could face a slew of legal action from freelancers who have been classified as workers for tax purposes but not given any rights, after a contractor won her case against Her Majesty’s Revenue & Customs (HMRC).
Marketing and business development consultant Susan Winchester lodged a claim at the Central London Employment Tribunal for £4,200 (US$5,484) in unpaid holiday against HMRC and four other parties earlier this year. She argued it was unfair that she was being treated as a worker for tax purposes but was not given crucial workers’ rights in return.
Under IR35 rules, which were introduced in April 2000, freelancers who work through a personal services company for a third party – and would be employees if not for this arrangement – are required to pay tax and national insurance as if they were employees.
Initially, contractors decided for themselves whether they believed IR35 applied. But in April last year, the law was changed to require public sector organisations to determine the tax status of their freelancers instead.
HMRC engaged Winchester’s company, SJW Marketing Solutions, in September 2016 to undertake marketing services. When the tax rules changed in 2017, HMRC analysed the relationship using its Check Employment Status for Tax tool and determined IR35 should apply. As a result, Winchester was moved onto the agency’s payroll.
Therefore, Winchester argued that, as she was now deemed an agency worker, she should be entitled to holiday as if she were an HMRC employee. The parties settled on the morning the tribunal was due to start.
Chris Bryce, chief executive of the Association of Independent Professionals and the Self-Employed (IPSE), which funded and backed the legal action, told Contractor UK: "Susan's case sends a very clear message to clients, that if you are going to treat contractors like workers, then you’ve got to give them worker entitlements. You can’t just decide someone is inside IR35, shunt them onto an agency payroll and expect someone further down the line to pick up the tab for your obligations like holiday pay."
An HMRC spokesperson told People Management: "In general, in deciding if the off-payroll working rules in the public sector applied, HMRC would consider a number of factors, including how the engagement worked in practice, as well as examining the contract itself."
Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.
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