IR35, Uber & the relevance of the UK's supreme court ruling on workers and contractors as well as on tax
Individuals were classed as ‘workers’ with applicable statutory rights as they met the following five factors:
- Their pay is determined by the organisation
- Services are performed on terms set by the organisation; the individual has no input
- Individuals are limited in their capacity to reject trips and were penalised for rejecting too many
- The organisation has significant control over how services are delivered
- Communications with customers were limited to prevent a private relationship being established i.e. the financial position of the individual could not be improved by their own endeavours
Since this ruling, organisations may now find themselves questioned by individuals about their rights. financial ramifications will likely be high for any successful employment status claims. Workers’ rights include auto-enrolment to workplace pension schemes, protections from discrimination and equal treatment for part-time workers Anyone classed as a ‘worker’ will also be entitled to minimum statutory pay and will need to undergo right to work checks.
This will all be in addition to the IR35 changes which come into force on 6th April 2021. These will require platforms which pay workers to make income tax and NIC contributions. Even if the terms of engagement say otherwise, engagement of a PSC contractor which risks the individual being classed as a ‘worker’ will fall under the new IR35 rules.
As a freelancer or contractor, you’ll typically contract your services by one of two means: by operating as a sole trader and contracting your services in your individual capacity, or by setting up a limited company and contracting your services through your company.
In both cases, it's important to ensure your relationship with your customers maintains an arms-length distance between you, meaning that it's properly a relationship between two fully independent parties that's ‘off-payroll’, not a disguised (or inadvertent) employer-employee relationship.
This might sound obvious and unimportant. But it actually matters a great deal. The UK’s tax regulator, HMRC, penalises trading relationships that should be employer-employee ones but are described as arms-length independent freelancer/contractor arrangements.