Qdos Consulting: Deliverance for Self-employed

Experts in tax status, Qdos Consulting, were called in recently to defend a parcel delivery firm against an HM Revenue & Customs challenge to the employment status of their workers.

The firm in question has its own workforce of full-time employees, who carry out various duties, including the delivery of parcels. However, the firm also engages a small number of freelance delivery drivers, who work on a casual basis and have other sources of self-employed income. The freelance drivers have no contracts, and whilst there is normally a continuous flow of work for them to do, and they do not have to provide their own transport, they have no set hours, and are paid only for the number of hours actually worked.

Unfortunately many people in business are not aware that it is not possible to just decide, or agree with the worker, that a worker is either an employee or self-employed. Employment status is based upon a complex history of legal precedent, and there are no straightforward rules laid down by Parliament. To make matters worse, many people who are genuinely self-employed and run their own businesses have similar working patterns to employees. On the other hand, many employees enjoy a great deal of freedom in their working lives, perhaps because of their extensive technical skills, or because they work from home, or because their day-to-day activities make it impossible for them to be closely supervised.

HM Revenue & Customs would like to see more self-employed workers become employees of their clients and pay tax at source under the PAYE system. It is becoming increasingly likely nowadays that any business that engages workers on a self-employed basis will be selected by the Revenue for a status review. In the eyes of the Revenue, if a self-employed worker's activities appear similar to those of an employee, then the worker concerned should also be an employee, irrespective of whether he or she has other sources of self-employed income.

In the case of the parcel delivery firm, the Revenue made it clear form the outset that they believed the casual drivers to be employees, and quite early in the enquiry issued demands for PAYE Income Tax and National Insurance Contributions from the deemed employer. The first thing that Qdos Consulting had to do was to appeal against this decision and to examine the facts.

Once the Revenue had been challenged about their decision, they admitted that they were in possession of what they called "third-party information", the source of which they refused to divulge. Someone - possibly a disgruntled employee, jealous of the perceived benefits of being classed as self-employed - was providing the Revenue with a completely false picture. Specifically, the informant was saying that the self-employed drivers had to work set hours and clock in and out, were being made to wear corporate clothing, and were generally being treated like the permanent staff.

The firm under enquiry found this situation alarming, to say the least. However much they tried to refute what was being said, the status officer at the Revenue appeared to be implacable, refusing to accept their explanations and asking for more and more evidence. Whoever the third-party informant was, they were clearly acting maliciously and saying exactly what the Revenue wanted to hear. It was even suspected that the Revenue was simply inventing the existence of an informant.

Qdos first tried to reassure their clients that however difficult the problem might appear, the Revenue could not simply manipulate the tax system by imposing falsehoods upon taxpayers. The Revenue's contentions were refuted in detail. It was then pointed out to the Revenue that if the matter were to go to an appeal hearing before an independent tribunal, the identity of the informant, and a copy of the informant's evidence, would have to be provided to the appellant.

The Revenue backed down totally, stating that their informant wanted to preserve their anonymity, and that the status decision would be revised, to be based solely upon the evidence provided by the would-be employer. The new decision was that the workers in question were genuinely self-employed.

The moral of this story is twofold. Firstly, employment status is a complex area and decisions should be based upon a thorough understanding of the facts, rather than a cursory review or first impressions. Secondly, neither businesses nor individual workers have to accept the Taxman's attempts to bully them into agreeing to a status decision that is unfair or misinformed. With the appropriate professional guidance, it is possible to stand up to HM Revenue & Customs and win.

Keith Preece - Qdos Consulting Ltd

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Posted 26/06/06

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