To be or not to be an employee – that is the question

Self employed individuals often want to be treated as employees for employment law purposes. This will give them possible entitlement to compensation for loss of their job or holiday pay or sick pay. Recent cases include Uber drivers, who successfully argued that they are employees. However, when it comes to taxation, you may not wish to achieve the same result.

There have been a number of high profile cases recently involving a piece of tax legislation called ‘IR35’. This legislation is aimed at individuals who set up limited companies to provide their personal services to a third party. Often the relationship between the individual and the third party is more like an employer / employee relationship and HMRC would like it to be taxed as if it is so.

In the cases of TV presenters Lorraine Kelly and Kaye Adams, where both individuals used a limited company to provide their services to the BBC, ITV and other media organisations, they successfully argued that the IR35 legislation did not apply in their circumstances. The First Tier Tribunal (FTT) stated that in Kaye Adams’ case she had no entitlement to holiday or sick pay from the BBC and that the BBC had no say over whether she could accept other engagements. The BBC contracts were only for one year and the income represented only 50% of her total income in the years in question. Looking at the position in the round, the relationship was not that of an employee and employer.

If you think this means your own personal service company is fine, and IR35 won’t apply to you, then think again. A FTT decision is not a binding decision and there have also been cases where HMRC have been successful. This was the case for Christa Ackroyd, also a TV presenter, where the BBC did represent the majority of her income and had much more control over her and her engagements.

IR35 may result in you being taxed as an employee but you still may not have the legal rights of an employee. The worst of both worlds!

If you’d like to find out more information or get advice regarding your employment status, contact our EQ Professions team at professions@eqaccountants.co.uk or by calling one of our offices.