How will the off-payroll rules affect home-working contractors?

28 Jan 2021 By Michael Paulin

With many still doing their jobs remotely, Michael Paulin explores whether this could affect a business’s ability to correctly identify IR35 status 

The cycle of lockdowns has made the concept of the home office a necessary element of what has become the new normal – entire workforces working from home. 

The furloughing of employees has, in some cases, had the unexpected benefit of improving communications within specific teams. At the Bar, senior clerks report that the requirement for a daily Zoom call with the entire business team has enhanced efficiencies and created less hierarchical and more facilitative lines of communication than before the pandemic. 

Acas’s guidance on working from home emphasises that employers and employees should be practical, flexible and sensitive. The importance of regular communications is highlighted by the guidance, and employees ought to be supported as to what new technology may be required in order to continue to do their jobs effectively. 

In the classic case Ready Mix Concrete v Minister of Pensions [1968], the so-called control test of whether there is a master-servant relationship was described by MacKenna J as including “the power of deciding the thing to be done, the way in which it shall be done, the means to be employed in doing it, the time when and the place where it shall be done”.

Yet the pandemic’s enforcement of working independence has in turn recalibrated the traditional concept of control within the employer-employee relationship. The regularity of a Zoom call has arguably diluted the more traditional hierarchies of communication that exist in many businesses, and it is the employees who have in many cases taken the lead on using technological resources and new ways of working. 

For independent contractors, the lack of control has often been relied upon as one justification for their status as a self-employed person running their own small businesses. The reforms to the off-payroll legislation, commonly referred to as IR35, will come into effect on 6 April 2021. Private businesses, for the first time, will be legally responsible for determining a contractor’s status for tax purposes. Employers will need to consider whether the contractor falls inside IR35 and therefore would be taxed as an employee, or outside IR35, which would mean the contract would be with their personal services company.

While cutting-edge legal technology exists to support business with the process of addressing a question that was previously never so inconveniently at their door, the reality of the pandemic has meant that any answer to such a hypothetical question is arguably even less clear cut than before. 

The necessity of business survival in an extraordinary economic and political climate has meant that many employees have had to take the lead like never before: by providing or using their own resources and equipment; by taking the lead on new ways of working; by suggesting adaptations to their existing roles – all the types of activities that are the common currency of the self-employed independent contractor. 

The nuance that the new ways of working involve will likely only increase the importance of legal technology being able to provide structured and corporate answers to hypothetical questions that, understandably, those who depend on independent contractors are reluctant to answer. It remains to be seen what the landscape will evolve to look like in the coming year, but it seems new and more fluid ways of working will not disappear. 

Michael Paulin is a tax and employment barrister based at 1 Crown Office Row

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