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A worker who was offered services through a limited company has been awarded nearly £15,000 in the tribunal case for unfair dismissal. According to Justin Roberts, a Senior Manager at Ernst & Young (EY), the case outcome serves as a reminder to employers about the consequences of non-compliant efforts to reduce taxes.
The case shows that employers need to be extra careful when the off-payroll working rule is implemented in the private sector in April 2020.
Details of the Case
In the tribunal case Mr A Reily v AJS Interiors Ltd., the plaintiff was engaged by the defendant through a limited company. The plaintiff established ACJJ Building Services Ltd. following the instruction of the plaintiff and started offering services through the company. However, it was revealed that the plaintiff was forced to continue providing work as per the employment contract.
After the plaintiff was terminated this year, he filed a case against the defendant for unfair dismissal, as well as not giving holiday pay and a pay notice.
While the defendant argued that the plaintiff had signed an agreement to offer services through the subcontracting company, all facts pointed to a continued employment agreement, which included no control on the nature of work, exclusive provision of services, regular work hours between 8:00 am and 5:30 pm, 45 hours per week work requirement, use of the company car, and paid holiday leave.
These factors led the presiding tribunal judge to conclude that the facts clearly show that the defendant required the plaintiff to continue working as per the employment contract, which was initially formed in 2006.
The outcome of the case should serve as an example for other companies who engage in similar schemes to reduce taxes and employment costs. It is expected that the IR35 rules that will be implemented in April 2020 and will encourage many private sector companies to take similar drastic actions. But the outcome of the case shows that this could land them into financial trouble.
According to John Chaplin, an EY Associate Partner, the case outcome shows that contractors are not the only ones who are responsible for engaging in activities to avoid taxation.
The ruling of the ET demonstrates that both employers and contractors need to be careful with employment schemes to ensure that they are not inadvertently breaking any rules. Not doing so could result in grave financial difficulties.
HM Revenue & Customs (HMRC) introduced the 2019 Loan Charge in order to recover unpaid taxes from individuals who have used disguised employment schemes since the 6th of April 1999. The new rule that will become applicable in April 2019 has received a lot of criticisms.
In a debate last month regarding the 2019 Loan Charge between MPs in the House of Common revealed that most consider it to be unfair that could have serious consequences.
The retrospective tax will consider all loans received by individuals through a disguised scheme as taxable income. The loan amount will be treated as if all the income has been received in the tax year 2018/19 subjected to an additional tax charge.
The recordings of the meeting reveal that while most MPs agree that unpaid taxes should be recovered, but most disagree with the approach taken by HMRC in this regard.
‘Catastrophic’ Effect on Tax Payers and Family
According to Steven Baker, a Conservative MP for Wycombe, the Loan Charge will have a catastrophic effect on the society if implemented. It could result in a large number of bankruptcies, suicide attempts, divorces, and also lead to unemployment, mental illnesses, loss of houses, and more. In short, the Loan Charge could cause misery and doom for a lot of families in the UK.
Experts predict that nearly 50,000 individuals will be affected by the Loan Charge. They will be required to pay the tax due by 31st January 2020. HMRC have recently announced that individuals should settle unpaid before 5 the April 2019 to avoid the tax charge.
MPs have raised the question as to why HMRC turned a blind eye to the tax avoidance schemes for all those years. The tax body has always been notified of any employment scheme as per the Disclosure of Tax Avoidance Schemes (DOTAS) rules. A case number would be assigned to the scheme that was considered as an implicit approval by the taxation body.
Jim Fitzpatrick, MP for Poplar and Limehouse, asked why HMRC had not written a single letter to users of loan schemes over the past 20 years. Why had the tax body not taken any action when it received annual tax assessment returns?
Despite being aware of the tax avoidance schemes, the taxation body did not take any action. Taking action now after all those years of implicit approval, which has resulted in the build up of significant liability, is unfair.
Loan Charge represents a continuation of unfair practices started due to IR35 off-payroll working rules. This piece of legislation has never worked and should be scrapped to avoid further problems.
A recent report that has been released by the People Per Hour (PPH) and the Association of Independent Professionals and the Self-Employed (IPSE) has found that Government policy has resulted in a decline of the freelance sector in the UK.
The report found that the self-employed contractor’s confidence this quarter in annual business performance has decreased by nine points, and has now entered into negative territory. The drop in confidence of the self-employed professionals regarding the economy is at record lows at the present.
The dip in confidence level is most likely due to the announcement in Budget 2018 regarding the implementation of IR35 reform rules in the private sector by April 2020.
Another reason for freelancers’ low confidence regarding the economy is the decrease in earnings.
The latest figures show that the wages of freelancers have decreased by £38 in the previous two quarters. Moreover, the demand for temporary workers has also decreased this year, which represents a further decline in freelancers’ earnings. The salary of these professionals has decreased by £400 this quarter as compared to the previous quarter this year.
A Silver Lining in the Cloud
While the freelancers are pessimistic about the overall economy in the next quarter, a lot of them believe that their day rates will increase by about 8 percent in the coming year.
In fact, day rates of technical and associate professional freelancers have increased this quarter, and the trend will likely continue in the next 12 months.
But according to Suneeta Johal, the Head of Research, Education, and Training at IPSE, most freelance professionals have suffered greatly this quarter, and they blame it all on the current Government’s policy. The pessimistic outlook is mainly due to the Government’s plan to implement the controversial IR35 reform rules in the private sector.
Andrew Burke, Chair of CRSE that promotes rights of self-employment workers, said that the self-employed sector has entered into a recession, and most blame it on the Government. The policies have made it difficult for them to find work.
CEO of PeoplePerHour, Xenios Thrasyvoulou, had stated that the Government has to address the uncertainty and lack of confidence that freelancers are feeling going into 2019. The Government needs to take measures to increase their confidence. This is important so that they are able to contribute productively in the growth of the UK economy.
Agency workers earn around £400 less than employed individuals. This is one the findings of the latest research report released by the Resolution Foundation. The research report had found that hourly pay of agency workers is 16p less as compared to Dec 11, 2018
Agency workers earn around £400 less than employed individuals. This is one the findings of the latest research report released by the Resolution Foundation.
The research report had found that hourly pay of agency workers is 16p less as compared to their employed counterpart if they are employed in the same job for more than three months.
In conclusion of the report, the research firm had recommended that the Government should repeal Swedish derogation in the UK’s Agency Workers Regulations. Also, known as the ‘pay-between-assign ment’ contracts, the loophole in the law allows companies to pay less to agency workers as compared to the employed staff resulting in lower taxes being paid.
The agency research report had also suggested that companies should give a standardised written statement that outlines the rights of workers. The suggestions were in line with recommendations by Matthew Taylor report published last year.
Rampant Abuse of Agency Workers Rights in the UK
The report had found that although a lot of workers enjoy the flexibility of agency work, they are subjected to ‘poor and unlawful’ practices by firms in the UK.
Lost holiday pay is a critical issue faced by agency workers that have been highlighted in the report. According to an estimate by the Resolution Foundation, agency workers had missed nearly £500 million in unpaid holiday pay last year.
While agency workers are eligible for auto-enrolment of pensions, most weren’t provided this right.
The research report has suggested that the Employment Agency Standards Inspectorate should create task forces in areas that are contract workers’ hotspots such as Sandwell, Leicester, Barking and Dagenham, and North East Lincolnshire. The task force should investigate poor employment practice and ensure agency workers are given their rights.
According to Lindsay Judge, a senior researcher at Resolution Foundation, most research regarding modern working conditions had overlooked the problems of agency workers. She stated that policymakers need to address poor work practice while preserving the positive nature of the work.
Moreover, there is a need to reform the regulations regarding agency work to prevent abuse of agency workers. Stiffer penalties can be imposed against employers who fail to provide due rights of the agency workers.
While the Government indicated its willingness to act on the recommendations made by Taylor review that are also included in the Resolution Foundation report, it has not made a clear statement as to when the changes will take place.
A report from the House of Lords economic affairs committee criticising HM Revenue and Customs (HMRC) for the 2019 Loan Charge had been welcomed by agencies representing contracting professionals including Qdos Contractor, IPSE, and WTT Consulting.
Recently other experts have also welcomed the report that indicates that the tax agency has been abusing power. The report has been endorsed by The Loan Action Group, Paul Spindler, a former partner at Kingston Smith chartered accountancy firm, and Chris Leslie, a former head investigator at HMRC.
Report Rightly Criticised Actions of HMRC
According to Mr. Leslie who was previously associated with the Revenue, the tax agency should have taken ‘reasonable discretion’ regarding the Loan Charge.
The report heavily criticised HMRC for not pursuing taxpayers according to their circumstances. The Economic Affairs Committee had been appalled about the practice that had caused great ‘anguish’.
Mr. Leslie who is now the head of Tax Networks Ltd. has stated that the extent of enquiries carried out by the tax authority should have been proportionate to the tax risk. The Lords report has done a good job in highlighting the inequalities in carrying out the investigations.
He had stated that the actions of HMRC are ‘concerning’. The newly trained investigators are given a lot of power in order to achieve results and increase revenues. He said that the parliament should not let this continue.
In addition, Mr. Spindler who was formerly associated with a chartered taxation firm had said the report makes it clear that the tax authority was given too much power in probing taxpayers.
He pointed out that Contractor Loan Settlement Opportunity was simply absurd that reflects mismanagement by HMRC of the process of enquiry to recover taxes.
Another professional agency that had sounded less sympathetic to the cause of HMRC was the Loan Charge Action Group (LCAG). The agency has said that the report has depicted that HMRC had taken an aggressive stance in its pursuit of taxpayers who had been caught by the retrospective Loan Charge.
The group had cited another report of the House of Lords regarding unfair treatment by HMRC that found that the tax agency has profoundly failed to target the scheme providers. This is contrary to the claims made in the House of Commons by the Treasury.
According to the agency, the tide is now turning against the tax agency. With the support from the House of Lords and also hundreds of cross-party MPs, it’s time that HMRC is held accountable for its unfair treatment of taxpayers and amidst the unethical legislation.
The Economic Affairs Committee (EAC) in the UK had recommended in a House of Lords report that the Government should revaluate loan charge. According to the report, there has been ‘disturbing evidence’ of abuse by HM Revenue &Customs (HMRC) in tackling pay schemes disguised to avoid taxes.
The report has cited an example of a social worker employed by a local council who had been fired and then re-engaged as a contractor for five years, and then again re-employed as an employee. This has left the work with one and a half year’s salary equivalent of loan charge creating financial problems for the worker.
The report has called for a creation of an independent body to review HMRC operations. This proposal has been supported by professional bodies that back contracting professionals.
According to the CEO of Contractor Calculator, David Chaplin, there is a desperate need of oversight of HMRC to ensure accountability and also fairness for individual taxpayers. If such a body had existed, the loan charge that had caused deep financial problems for contractors would not have been approved.
However, a Government representative commenting on the report stated that the Government wants to make sure that people pay their share of taxes so important public services can be funded. That’s why HMRC has been given powers to crack down on individuals and companies that don’t pay taxes. He had said that strict measures were required against tax evasion and avoidance practices
Due Diligence with Regards to Contracting Professionals
Ms. Julia Kermode, CEO of Freelancer and Contractor Services Association (FCSA) says that the Criminal Finances Act (CFA) make recruitment firms and companies legally responsible for tax evasion practices in the supply chain. If caught, it can lead to criminal conviction and hefty fines. They need to avoid recommending any scheme to workers that are created to evade taxes.
Ms. Kermode stated that recruiters need to ensure that no one is engaged in tax avoidance schemes in the supply chain. They need to ask questions such as whether the supplier is paying the right NI, VAT,and PAYE tax to HMRC. It’s important that the recruiters ask whether the supplier is contracting with a third-party entity in the UK. Also, recruiters need to confirm whether the company through which they engage the workers is the one that pays to them.
Investigating the supply chain for compliance with tax rules is particularly important in the current scenario when IR35 reform in the public sector has facilitated tax avoidance schemes. With the extension of the reform in the private sector in April 2020, due diligence will be required in both the public and private sectors in the UK.
The National Audit Office (NAO) has recently released a report analysing the impact of IR35 reform rules on the BBC.
The findings of the report show that the national British broadcaster encouraged contractors to engage through their Personal Service Companies (PSCs). This has been done to avoid paying employer National Insurance Contributions (NICs) and also to give bigger receipts to the workers, resulting in lower dividend rates and taxes.
But the report also reveals that after the implementation of IR35 reform rules in April 2017, BBC was forced to change its policy regarding contractor employment to avoid paying a tax avoidance penalty.
The company had also sought an extension for implementation of IR35 and made large payments to HM Revenue and Customs (HMRC).
Problems Regarding CEST Assessment Tool
The NAO report has particularly highlighted problems faced by BBC regarding HMRC’s Check for Employment Status Tax (CEST) tool.
CEST tool does not always result in the correct assessment of contract workers. The tool is notorious for wrong assessments due to which contractors have to face financial hardships. Still, despite its obvious shortcomings, the NAO report shows that BBC continued the use of the tool to make contractor assessments.
While CEST has been shown to make incorrect assessments, it does not mean that the tool always makes the wrong decisions. The tool does make correct assessments in many cases, resulting in fair and equitable tax charges.
A number of cases have arisen in the past where the contractors were wrongly assessed as outside IR35 based on unreliable contract assessments. This meant lost revenues for HMRC due to which it had introduced the IR35 reform rules last year.
The NAO report has correctly highlighted the shortcomings of the employment status tests and the problems faced by public sector companies. After April 2020, private sector companies would want certainty in assessments. Unless HMRC offers an alternative tool for employment assessment, no tool is currently available that can accurately assess the status of contractors. The solution to the issue is to get the contract reviewed by an IR35 specialist firm such as Qdos Contractor.
While the cost of reviewing the cases by a professional may be more, it will result in more accurate assessments thereby preventing costly court battles.
The main thing that private sector firms should focus on is the accuracy of assessments. They need to make sure that correct assessments are made based on an accurate review of contracts. It will benefit both the employer and the contractor in the long run as they don’t have to face financial hardships and court cases for violating IR35 reform rules.
Experts say that MPs who continue to endorse the controversial IR35 reform rules may lose public favour during the next, and possibly imminent, UK General Election.
An independent research firm Contractor Calculator has identified 85 MPs who could lose their seats if they don’t back contractors and oppose the Government’s plan to implement the private sector IR35 reform.
The private research firm has made the conclusion after analysing the data provided by the Office for National Statistics (ONS) and also reviewing the previous survey carried out by the company to know about the public sentiment.
Public Sentiment Regarding Of-payroll Working Rules
Contractor Calculator analysed the figures released by ONS regarding the number of self-employed individuals in different constituencies in the UK. The voter turnout figure during the previous election was analysed to find out voters who are self-employed in different regions.
Furthermore, a previous survey of 2,000 contractors was reviewed that showed that nearly half of them would not vote for an MP if they favour reform rules. The percentage has been applied to the number of self-employed active voters to determine the total number of votes expected to be received by a party member. Through this, it was found that 85 MPs could lose their seats in the next election.
According to Dave Chaplin, the CEO of Contractor Calculator, parties that don’t secure sympathies of self-employed individuals risk losing the vote. The result will be particularly devastating for the Tories that comprise 39 out of the total 85 identified seats. In order to win the seats, parties have to act quickly and gain the trust of the self-employed individuals.
The research report had also found support for MPs who had signed the early day motion (EDM) against the 2019 Loan Charge.
Mr. Chaplain had stated that the Loan Charge is highly deleterious to contractors. The retrospective tax has driven many contractors to look for alternate schemes. MPs who have opposed the Loan Charge will fare far better during the next election.
The list of vulnerable MPs contains 24 Labour and 40 Conservative politicians. The self-employed vote will be a crucial and deciding factor in determining the winning party. Tory MPs will also find it hard to save their seats particularly due to the recent announcement of private sector IR35 reform and different draconian rules against contracting professionals.
Other parties that are in a precarious position due to not supporting contracting professionals include the Scottish National Party (SNP) and the Liberal Democrat.
As October 2018 came to its end, the Chancellor was waiting to make an important announcement. He explained the battle of S&S Umbrella dealing with the rules of the public sector which were extended to the private sector—an issue that heavily matters to S&S Umbrella for their clients’ well-being.
Going by the announcement, it is believed that after April 2020, the responsibility falls on the shoulders of clients to analyze and process the status of IRS35 for their activities. What this means is that, the client’s hired agency or the client themselves now carry the duty to make decisions about the right tax calculation and deduction and hence the source carries the burden for taxation.
Financial professionals and tax analysts are not too receptive of Government’s policy. As a result the Government noticed the warning from S&S and put a stop to their plans for bringing these regulations in 2019. More impressively, the smaller fish in the sea .i.e. small businesses are not to be affected by the restrictions of the reform. In the past, we have always shed light on the subject matter and our grievances with its hindering rules.
One of the major talking points about the legislation that has spread confusion in the finance sphere is the impact that follows after its implementation. Analysts question if this means a spike in the cases of retrospective investigations? For example, if a client (let’s say they have been a working on a contract for 7 months) was hesitant in their acceptance of client determination—which is applied by the IRS35, brings out the following questions:
- Were they responsible to be compliant with the IR35 since the beginning?
- Would the HMRC target that individual’s record for their previous history?
- ‘The reform is not retrospective – as it has in the public sector HMRC will focus its efforts on ensuring businesses comply with the reform rather than focusing on historic cases.’
- ‘HMRC will not carry out targeted campaigns into previous years when individuals start paying employment taxes under IR35 for the first time following the reform and businesses’ decisions about whether their workers are within the rules will not automatically trigger an enquiry into earlier years.’
Are you aware about the ‘loan charge’? In the recent turn of events, loan charge — an issue that has been plaguing honest and hardworking families — has gained wider recognition. A host in the local LBC show shed some spotlight on the matter on their show and they were astonished by got a huge influx of public messages; most of them were gloomy, representing the sad state of affairs for many honest taxpayers.
The problem is that several citizens have to face the onslaught of unfair and hefty tax bills. The reason behind the predicament was the poor decision making of Treasury authorities who went back on their taxation policy. Earlier, contractors and freelancers were permitted to get their due payments through employee benefit trusts—this payment was basically “loans” that did not require to be paid. As a result, the self-employed individuals were able to get some tax relief.
In a recent turn of events, the process has been declared as unlawful and branded as ‘tax evasion’. To add salt to their injuries, authorities have announced their intention to seek payments for the past 20 years. Interestingly, laws only require individuals to keep track of their financial information of the last 7 years.
In the local LBC show, the host had some words with the financial secretary, Mel Stride, on the matter. While he maintained his composure and was amicable, Mr. Stride comments on the issue were not well-accepted by the analysts and the victims of Treasury’s backpedaling.
Some analysts opine that the government could not predict the damage of their actions and therefore, were unable to gauge the sentiments and damages of their citizens. Due to the guarantee of HMRC, some people are questioning their financial advisors who lead them into this dark hole. Though, it is not realistic to believe that the government would look over the financial consulting aspect. Instead, financial professionals are adamant that the government is hell-bent on receiving money.
Accounts of Victims
Unfortunately, it is the middle class which has been brutally hit by the abandonment of government. The host was reached out by a local GP, Sarah from Maidstone. Ms. Sarah claimed that she was asked to pay £120,000; a figure which has left her no way other than the sale of her home. From Windsor, Mark was forced to give £180,000; his family is now compromising by residing in a council flat with only two bedrooms. Similarly, as more and more stories poured in, it was evident that the lives of a lot of people were never going be to be the same.
The mistreatment of citizens on such a large scale is absurd for any state. Considering, since we have a Conservative government, these actions can be only labelled as contradictory and capricious, since these victims are supposed to be among those who voted for Tory. Now, there is nothing wrong for authorities to identify loopholes in taxation policies and outlaw it.
However, their execution and attitude matters! By taking a fierce reversal on a once-legal process; particularly on the law-abiding segment which was dutiful in their tax payments; and ignoring the net outcome of one’s actions on families as people run frantically to rescue their families from the recently formed abyss; the government has made a huge misstep.
Drivers for London-based minicab company Addison Lee could be owed wages and holiday pay after an employment tribunal test case found that some had been wrongly classed as self-employed.
The tribunal in central London ruled that three drivers, who claimed they earned the equivalent of about £5 an hour as self-employed contractors, should have been treated as workers. That means they must receive the minimum wage of £7.50 an hour, plus holiday pay, and will be owed back pay.
Addison Lee uses 3,800 self-employed drivers in the capital, who are all potentially affected by the case brought by Michaell Lange, Mark Morahan and Mieczysław Olszewski. Their lawyers estimate that holiday pay for each worker could amount to £4,000, with wages yet to be calculated.
The verdict is the latest legal blow to companies operating in the gig economy and raises the stakes for the appeal against a similar ruling against rival minicab operator Uber, which opens at the employment appeals tribunal on Wednesday.
In October 2016 Uber lost a tribunal case brought by two of its 40,000 drivers, who argued successfully they should be treated as workers. Neither ruling automatically mean all self-employed drivers will receive worker rights, but unless the firms change the contractual arrangements, they would be left open to mass claims in the employment courts.
Addison Lee said it was disappointed with the ruling, which was handed down by employment judge David Pearl. He concluded its defence of the self-employment arrangement “defied evidential gravity”.
“We have always had, and are committed to maintaining, a flexible and fair relationship, which generates work for 3,800 drivers,” a spokesman for the company said, adding that it would review the decision.
Addison Lee made £61m in profit last year. It is owned by the private equity giant Carlyle Group, which brought it in 2013 for about £300m from owners including founder John Griffin, a former minicab driver, who set up the company in 1975.
During the tribunal, Addison Lee conceded that it had implied the drivers in its branded cars were part of its organisation, but argued that in reality each was running a small business.
However, the tribunal did not accept this after hearing that drivers faced fixed costs of hiring Addison Lee-liveried Ford Galaxy cars, which typically cost between 25 and 30 hours work a week to pay off.
It heard they were obliged to accept jobs once logged on to the company’s booking system, comply with a dress code and a code of conduct that, among other things, required asking customers if they had a preferred route. They were also told they must not “pull away” from a job without the consent of the control base, again suggesting they were not self-employed.
Pearl ruled that “the drivers were not in any realistic sense contracting with Addison Lee”, rather that “they were in a subordinate position”.
Morahan, 63, who worked as an Addison Lee driver for more than a year before bringing the case, said he had watched drivers’ earnings falling and that he was very pleased with the verdict.
“This combined with the Uber case will ensure that these American companies play by the rules,” he said. “They are happy to drop prices but it is the drivers who end up paying for it. When people are desperate for a job they have no option but to work longer hours and they are taken advantage of.”
Liana Wood, solicitor at Leigh Day, which represented the drivers, said Addison Lee had “sought to deny its drivers the most basic workers’ rights” and that its drivers “very often work very long hours, in excess of 60 hours a week, in order to just earn enough to cover their basic living costs”.
She said: “This decision will not just have an impact on the thousands of Addison Lee drivers but, following on from the decision in Uber, on all workers in the so-called gig economy whose employers classify them as self-employed and deny them the rights to which they are entitled.”
Maria Ludkin, legal director of the GMB trade union, which backed the claim, said: “This ruling means yet another logistics firm has been forced to obey the law and honour responsibilities to employees. GMB will continue to pursue these exploitative companies on behalf of our members.”
Similar employment tribunal cases considering worker rights for self-employed gig economy workers are due to be heard early next year involving couriers for the delivery companies Hermes and DX.
Deliveroo riders have been denied their human rights to collective bargaining, the High Court has heard in the latest legal case involving the so-called “gig economy”.
The Independent Workers Union of Great Britain (IWGB) is attempting to overturn a ruling which found that the company’s riders are not entitled to collective bargaining rights because they are “self-employed”.
The union wants to represent Deliveroo riders in order to negotiate on issues of pay, hours and holiday with the company.
The union is aiming to overturn ruling denying right to collective
Last November, the Central Arbitration Committee (CAC) rejected the IWGB’s application to represent riders in north London as riders were able to pass a job to a substitute, meaning they were not obliged to provide a “personal service” and could not be classified as “workers”.
But, at a hearing in London, John Hendy QC said the CAC failed to address the IWGB’s argument that the law which defines a “worker” must be interpreted in a way which gives effect to riders’ rights to collective bargaining under Article 11 of the European Convention on Human Rights.
Mr Hendy said the right to the benefit of collective bargaining is “conferred on all workers and their trade unions”, adding that there were limited “categories of work” to which it did not apply, such as the police or armed forces.
He said the riders “want their union to bargain collectively with Deliveroo over their terms and conditions and, in particular, pay, hours and holidays”.
He added: “Deliveroo refuses to bargain collectively with this or any other union on behalf of its riders. Deliveroo is adamant that it, and it alone, will determine the terms and conditions without any input from its riders and on a take it or leave it basis.”
Mr Hendy said the key issue was “whether domestic law can be read in a way which prevents what appears to be a violation” of the right to collective bargaining.
He submitted that a restriction of the right to collective bargaining could be justified, for example, if it was necessary in order to protect the rights or freedoms of others, but added: “Plainly the impact of the restriction is disproportionate to any perceptible benefit.”
Mr Hendy said the “substitution clause” in Deliveroo’s contracts should not “preclude” riders from the right to collective bargaining, and that Article 11 must be read “so as to conclude that the right to bargain collectively is, indeed, that of ‘everyone’ with no exemption being permitted for the self-employed”.
In written submissions, Christopher Jeans QC, for Deliveroo, said the IWGB’s argument on Article 11 was “an afterthought” before the CAC, which “nonetheless expressly considered the belated Article 11 submission and did not accept it”.
He added that “whatever general rights they may have had under Article 11, the riders did not have the specific right to collective bargaining”, which only applied to “those in an employment relationship”, and therefore there could be no interference with that right.
But he said that, even if the riders did have that right, the interference was “plainly necessary … for the protection of the rights and freedoms of others”, which included the “freedom of business and freedom to contract on terms the business chooses to offer”.
It also included, Mr Jeans added, “freedom from the imposition, including the consequences, of bargaining arrangements”.
He submitted that the IWGB needed to establish that Article 11 afforded Deliveroo riders collective bargaining rights, and that it was “impermissible” for UK law to exclude workers from those rights because they had no personal obligation to work.
He said the “limited nature of the interference” was significant, adding that the current definition of worker “merely prevents those who do not have to do work (or do it personally) from invoking recognition procedures”.
Mr Jeans argued that states were entitled to “define the circumstances” in which the right to collective bargaining applies, which in the UK requires an individual to “perform personally any work or services for another party” to be classed as a worker.
Mr Jeans concluded that the IWGB’s contention that riders with “no obligation to work”, and who can “appoint someone else to do any item of work” and work with a competitor, had the right to bargain collectively was “extraordinary”.
Mr Justice Supperstone will hear submissions over two days, and is expected to reserve his judgment.
HMRC Will Publish a Second Consolation Document Regarding Private Sector Off-Payroll Working Rules Nov 29, 2018
HM Revenue and Customs (HMRC) has recently announced that it will publish a second Consolation Document regarding private sector off-payroll working rules in mid-2019.
The taxation body has announced that the new consultation will focus on the operations of the IR35 reform rules that will be implemented in April 2020. The new consultation will guide the Finance Bill legislation that will be published next year.
IR35 reform rules have been heavily criticised by experts. The main reason for the censure is a wrong assessment of contractors that wrongly put them inside IR35. The problem stems from shortcomings of HMRC’s Check Employment Status for Tax Tool (CEST), particularly the missing Mutuality of Obligation (MOO).
Not all contract work involves MOO — a fact that is ignored by the employment status assessment tool. Moreover, there are contractors who provide services to multiple agencies that are not accounted for by the tool.
The questions of CEST tool are not applicable to all contractors. These cannot be adjusted to account for different contractual situations. Due to these shortcomings, a lot of confusion and misunderstandings were created when IR35 reform was introduced in the public sector in April 2017.
Consultation to Address Flaws of CEST
The consultation will likely address all the shortcomings of the CEST tool. HMRC has stated that it will assess consequences for wrongful assessment of employment status. Many contractors had been wrongly assessed due to blanket determinations, which will also be looked into in the consultation.
While HMRC had previously published a paper addressing some of the deficiencies of CEST such as the exclusion of MOO, no solution was issued. The publication paper had been criticised by experts who said that it highlighted a lack of understanding of the core issues relating to the employment assessment tool.
In recent cases involving IR35 reform rules, MOO was regarded as a critical factor in determining the status of the contractor. The failure of HMRC in defending cases may have forced them to address the shortcomings of the employment status tool.
Moreover, HMRC also intends to offer further advice and support to businesses so that they can make accurate assessments. The taxation body has also stated that it will publish guidelines for independent contractors who want to challenge the decision regarding employment status.
However, experts are doubtful whether HMRC will be able to address all the issues surrounding the off-payroll working rules. The taxation body has previously made similar promises but without solving the issue. We have to wait and see whether the taxation body is really able to solve the issues surrounding employment status tool resulting in a fair assessment of contractors.
The UK Chancellor of the Exchequer Philip Hammond has acknowledged that he was wrong to say that Loan Charge amounted to a tax evasion practice. Instead, he says that it was tax avoidance.
Tax evasion and avoidance are two different terms in the legal context. The former means to evade tax payment through illegal tax schemes. On the other hand, the latter means to avoid taxes through schemes that are not illegal with the intent to reduce tax liabilities.
Many tax experts across the Atlantic, in fact, encourage firms to reduce taxes through different schemes.
A red-faced Hammond has admitted that he was at fault to call loan charge as tax evasion scheme. The concession is of significance since it means that the Government was wrong in implying parties such as Loan Charge Action Grip who engaged in loan charge schemes as committing illegal acts.
However, some experts question whether the Chancellor of the Exchequer is really apologetic since the letter that was buried in a letter that addressed fixed-odds betting did not use any words of apology.
Parliament Condemn Use of Any Tax Avoidance Scheme
In Parliament, tax avoidance schemes continue to be regarded as undesirable. One Tory MP had stated that promoters of tax avoidance schemes should be condemned as they have lured people into misery.
John Glen, the Treasury minister, has stated that the five cases related to the tax avoidance schemes are in court, which cover a large number of workers. He stated that the responsibility for individuals who have been affected by tax avoidances scheme rests on those who promoted the scheme.
Mr. Glen had also shared the statistics that the loan charge has increased to 24,000. He stated that HMRC receives up to 4,000 calls a week.
Individuals whose annual income is less than £50,000 would now be ‘automatically’ allowed to avail Time to Pay arrangements lasting up to five years. In contrast, the average salary of the scheme is nearly £60,000, which indicates that the TTP arrangement would only benefit 3 percent of affected individuals
The Minister had stated that loan charge payments will continue to be subject to tax. He stated that it’s unfair for contractors who owe taxes to get away without making any payment.
Mr. Hammond has also stated that it’s not reasonable for individuals to be paid loans that are not repaid. This is not fair to the vast majority of people who pay full taxes on their income.
The General Anti-Abuse Rule (GAAR) was enacted in July 2013 to address taxation arrangements that took advantage of loopholes in the tax law. The rulings are of importance to self-employed workers and entities that take part in shady employment schemes to avoid taxation.
The GAAR Advisory Panel oversees the application of the anti-abusive law. This panel determines whether the arrangements are abusive in any way. In case they are found to be abusive, HMRC may issue an accelerated payment notice (APN) and impose a penalty on the guilty party.
Schemes that Violate the GAAR Law
The GAAR law specifically address employment schemes that try to evade taxes.
A number of cases are there in which HM Revenue and Customs (HMRC) have accused workers and companies of disguising taxable income through schemes such as the employer-financed retirement benefit scheme (EFRBS).
A simple example can help understand the schemes that are considered illegal as per GAAR and could result in a penalty.
Suppose that Mr. Z offered services to XYZ company through A Ltd. XYZ pays A Ltd. £15,000 and MR. Z £10,000 salary plus a loan of £90,000.
The total taxable income in the above case will be £100,000, and not £10,000, since it is considered a disguised tax scheme according to GAAR. Mr. Z would be liable to pay unpaid accrued taxes on the total taxable income since the date of employment to HMRC.
The intention in cases such as that mentioned above is clearly to avoid taxes by taking advantage of loopholes in the taxation laws. The scheme is created to disguise the net income of the contractor. Once it comes under the radar of HMRC, the GAAR advisory panel will provide a ruling against the contractor and may even impose a hefty penalty.
Implications of GAAR Law
The aim of GAAR is to make it difficult for workers to take advantage of gaps in the taxation system. Contractors and employment agencies are required to fully understand the implications of
the law. They need to avoid a narrow interpretation of tax rules and understand the legal status of all employment arrangements.
Most tax avoidance schemes may seem to be working during the initial stages allowing the workers to save a lot in taxes.
However, such shady schemes are sure to backfire, resulting in grave financial difficulties for all the involved parties. That’s why it’s essential to get help from a professional independent advisory body such as Qdos Contractor to know about the tax implications of any scheme. Taking this precautionary measure to ensure conformity with GAAR rules can help avoid financial and legal problems later on.
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