Experts are warning of a slew of legal action from freelancers who have been classified as workers, after a contractor settled with HM Revenue & Customs (HMRC) for thousands of pounds late last week.
Marketing and business development consultant Susan Winchester (pictured above) lodged a claim at Central London Employment Tribunal for £4,200 in unpaid holiday against HMRC and four other parties earlier this year. She argued it was unfair that she was being treated as a worker for tax purposes but was not given crucial workers’ rights in return.
Under the IR35 rules, which were introduced in April 2000, freelancers who work through a personal services company for a third party – and would be employees if not for the set-up – are required to pay tax and national insurance as if they were employees.
Initially, contractors decided whether they fell within IR35. In April 2017, the law was changed to require public sector organisations to determine the tax status of their freelancers instead. The government is considering extending the amends into the private sector.
HMRC engaged Winchester’s company, SJW Marketing Solutions, in September 2016 for marketing services. When the tax rules changed in 2017, HMRC analysed the relationship using its Check Employment Status for Tax tool and determined IR35 should apply. Winchester was moved onto agency payroll.
The consultant argued that, as she was now deemed an agency worker, she should be entitled to holiday as if she were an HMRC employee. The parties settled on the morning the tribunal was due to start.
“I’m a very fair person, with a strong moral compass. I would never have taken someone to court without a very good reason,” said Winchester. “But I just couldn’t understand why somebody could make some arbitrary decision about my tax and employment status on a brief, over-simplified questionnaire that I had no input in and seemingly no right to challenge.”
Chris Bryce, CEO of the Association of Independent Professionals and the Self-Employed (IPSE), which funded and backed the legal action, added: “[Winchester’s] case sends a very clear message to clients, that if you are going to treat contractors like workers then you’ve got to give them worker entitlements. You can’t just decide someone is inside IR35, shunt them onto an agency payroll and expect someone further down the line to pick up the tab for your obligations like holiday pay.”
Other organisations also welcomed the settlement. “This case is just the tip of the iceberg and we are likely to see more fallout as contractors stand up for their rights,” said Julia Kermode, chief executive of The Freelancer & Contractor Services Association. “I hope this sends a clear message to policymakers that they need to reconsider any move to roll out the reforms into the private sector or risk bringing the country to its knees.”
Dave Chaplin, CEO and founder of contracting authority ContractorCalculator, added: “Given the amount of public sector contractors who have been bundled into these types of arrangements, we expect that this settlement will give rise to a number of similar challenges.”
And Seb Maley, Qdos Contractor CEO, remarked: “This case sets a huge precedent, showing that individuals taxed as workers and not as contractors deserve employment rights. It could well be the catalyst for many more cases like this.”
An HMRC spokesperson said: “HMRC does not discuss identifiable individuals. In general, in deciding if the off-payroll working rules in the public sector applied, HMRC would consider a number of factors, including how the engagement worked in practice, as well as examining the contract itself. HMRC was committed to ensuring that its approach to the changes as an engager was clear and transparent.”