Charlie Mullins said after the case: “This decision will potentially leave thousands of companies, employing millions of contractors, wondering if one day soon they will get a nasty surprise from a former contractor demanding more money, despite having been paid in full years ago.”
Contractor, worker or employee?The case has highlighted confusion around how workers in our modern economy should be classified. Employment law specialists are calling for the government to bring forward legislation to clarify principles around employment status. This is important for workers’ rights, but also for the purposes of tax. Far from taking Gary Smith’s stance, many contractors – for example in the IT industry – are keen to remain 100% self-employed, and are willing to forgo rights such as sickness and holiday pay for the benefits of higher freelance rates and flexibility of working hours. Equally, employers are happy with this arrangement as it means they have fewer obligations and a degree of flexibility as projects and recruitment requirements ebb and flow. Being paid through a Personal Service Company (PSC), rather than working as a sole trader, is another way that contractors can benefit. Lower tax rates in the form of corporation tax, and the ability to offset expenses against profit are just two reasons why the PSC route is preferable for many. But changes are afoot here, too. Public sector workers paid through a PSC are now liable to pay the usual income tax and National Insurance Contributions (NICs) under PAYE. Many broadcasters at the BBC fall into this bracket; earlier this year the HMRC ruled that former BBC presenter Christa Ackroyd should have been treated as an employee rather than a self-employed contractor, and she is now facing a tax bill of over £419,000. It’s widely believed by industry leaders that these rules will eventually roll out to the private sector. The BBC, along with many other employers, is now using three main types of categorisation for employment:
- Employee, with a wide range of employment rights including holiday pay, maternity and paternity pay and a written statement of employment
- Worker, including some employment rights such as holiday pay
- Self-employed, no right to holiday pay, although still some protection e.g. for health and safety on a client’s premises. Working for someone on a self employed basis ?
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