Flexible Working is on the increase
There has been an increase in the number of casual staff, consultants and seasonal workers. Employers also report that the number of people requesting the right to work flexibly has gone up on average by over 75% in the last three years.
Employers understandably want to send out a positive message to the workforce about flexible working to be able to retain valued staff who want and need flexibility.
Following the recent decision by the Court of Appeal in Christianuyi Limited & Others v HMRC  WECA Civ 474 and ahead of IR35 changes being rolled out for the private sector the flexible working landscape is changing.
The use of personal service companies (PSC) by some of the BBC’s highest paid stars has recently been challenged by HMRC. The questions that HMRC have been asking focus on whether the PSC has the right to provide a substitute to provide the services, the extent to which the individual has control over how they undertake their assignment and whether there is an obligation to offer work. These considerations are similar to those in the Uber and Pimlico Plumbers cases when considering employment status. Although helpful they are not definitive of tax status. Ultimately if someone behaves and is treated as an employee then they will not be able to receive payments gross.
In April 2017 responsibility for assessing engagements with PSC’c working in the public sector shifted to the public sector end user. Where engagements between a public sector end user and a PSC have the features of employment the fee payer must account for tax and NIC under PAYE when paying the worker (including employer NIC’s). This means an extra cost to the end user.
It is worth noting the UK’s PAYE regime is subject to various territorial limitations which are now broadly mirrored in the public sector. The starting point is that the PAYE obligation rests with the end user if it is resident or has a place of business in the UK. In the PSC supply chain the PAYE obligation falls on the last on-shore payer in the chain before the person controlled by the worker (i.e. the PSC) or failing that the client. A client is deemed resident in the UK for PAYE obligations if it is deemed to be the fee payer, the individual worker is UK resident and they spend some time working in the UK. For corporate supply chains and gig platforms it is easy to see how PAYE obligations could now be missed in cases where it is unclear who the last on-shore payer is in the chain. In 2018 the Chancellor confirmed that the public sector rules will be extended to the private sector from April 2020, but with an exemption for small businesses.
Manages Service Company (MSC) legislation was introduced in 2007 to prevent contactors using third parties to manage their tax affairs under the disguise of a limited company status.
Where a company is set up to provide a worker’s services to an engager and the MSC legislation applies, amounts paid to an MSC for those services that are not already subject to PAYE Income Tax and Class 1 National Insurance contributions (for example, share dividends), are treated as employment income.
A PSC (which falls outside of IR35) will be a MSC if there is a MSC Provider in the supply chain. The MSC Provider will generally promote the use of such companies and provide the structure. The worker, despite being a shareholder, does not exercise control of the company. A business will be a MSC Provider if its business is promoting or facilitating the use by individuals of companies through which the individuals will provide their services to the end client.
The outcome of the Christianuyi case potentially makes it much easier for HMRC to use MSC legislation. Parties in the supply chain that were relatively low risk, such as staffing companies and gig platforms, now potentially face a significant retrospective liability. HMRC are already looking to open further cases in this area, but how far their reach will extend and who will be affected is not yet clear.
For advice about any of the issues raised in this article or other issues relating to employment law, please contact our employment law specialist Anna Illingworth via email at firstname.lastname@example.org or call 0118 958 5611.