The employment status minefield

Employment status is a hot topic with government consultations underway in 2018 on the issues of employment status and IR35 in the private sector. Add this to the changes that were made in IR35 in the public sector in 2017, the amendment to the agency legislation and subsequent reporting requirements that were imposed in 2014 and 2015 respectively, and this area is now a minefield which requires careful navigation for companies engaging individuals that are not on their payroll .

The consequences of non-compliance in employment status, both in respect of penalties and HMRC’s pursuit for transferring liabilities, means this is a key area of a business which can no longer be cast aside.

The agency legislation was originally amended to stop the growth of companies forcing low skilled individuals into self-employment when it was evidently not appropriate. The amended legislation was however very broad when drafted and encapsulated any business that would be deemed to sit between “a client” and a “worker”. Whilst a business such as a recruitment company would unquestionably fall within the remit of this definition, HMRC have made it clear that they will seek to apply the legislation on a much wider scale.

This can be seen in HMRC guidance on the agency legislation (ESM2036) in its Example 4 (, whereby Nicky requests a building company (TBL) to build an extension, including the provision of all necessary tradesmen to undertake the work. Nicky will pay TBL for the work and TBL will in turn pay all the relevant tradesmen for their services. HMRC’s view on this relationship is that Nicky is the client, the building company are an agency and the tradesmen are the workers, meaning the agency legislation applies.

The above is a typical example of how most builders/construction companies will carry out their business and very few people would consider that a bog-standard building company operates as an “agency” and therefore be bound by the provisions of the agency legislation. HMRC beg to differ and is likely to challenge many companies under these provisions, thus catching most companies by suprise.

Chapter 10 of Tax Planning 2018/19 (Bloomsbury Professional) sets out what has changed in this area in recent years, why and how it can apply to organisations. The focus of the chapter is on agencies and intermediaries such as personal service companies but its application is wider and the ramifications of these areas of law can stretch much further than was originally proposed and so it becomes a fundamental area of tax law for any companies engaging self-employed individuals. Authored by Kye Burchmore LLB, RIFT Legal Services (

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