This page contains information that has appeared on Sandy Adirondack's legal update website for voluntary organisations at www.sandy-a.co.uk/legal.htm. For current updates, including potential changes that are in the pipeline, see the legal update website.

These websites for each chapter update the 2nd edition of The Voluntary Sector Legal Handbook by Sandy Adirondack and James Sinclair Taylor (Directory of Social Change, 2001). The websites are not intended as a comprehensive update and should not be treated as such.

To order a copy of The Voluntary Sector Legal Handbook, print out the order form at www.sandy-a.co.uk/bookserv.htm or send an email order by clicking . It costs £50 for voluntary organisations or £80 for others, plus 10% p&p. We expect the third edition to be published in 2007.

The information here covers the law applicable to England and Wales. It may not apply in Northern Ireland and/or Scotland. These news items are not a full or definitive statement of the law and are not intended as a substitute for professional legal advice. No responsibility for loss occasioned as a result of any person acting or refraining from acting can be taken by the author.

Chapter 34
SELF-EMPLOYED WORKERS AND OTHER CONTRACTORS

RIGHTS OF SELF-EMPLOYED WORKERS

Added 14/8/05. This information adds to s.34.1.1 in The Voluntary Sector Legal Handbook 2nd edition.
Self-employed individuals are "workers" for the purposes of equal opportunities legislation. For the purposes of other workers' rights such as minimum wage and working time rights, they are workers only if they have to do the work personally (i.e. they cannot sub-contract it) and they are not doing the work for a client or customer of their profession or business undertaking. Because most self-employed people carry out work for their clients or customers, they are not entitled to workers' rights except for equal ops protection.

A Court of Appeal decision on 23 April 2004 sheds light on how this rule applies in borderline situations. The case involved bricklayers who worked for Redrow Homes for up to seven months on a self-employed basis, and claimed holiday pay as "workers".

First, the CA confirmed that the obligation to do the work personally can be inferred--it does not have to be explicit in the contract.

Secondly, the judgment said that the inclusion of "workers" in the Working Time Regulations and other legislation was intended to provide protection for people who are not employees, but who are nonetheless in a similar position of dependence on the employer--such as self-employed building workers who in practice work for long periods for a single employer as an integrated part of their workforce. This can be contrasted with other self-employed people who "have a sufficiently arm's-length and independent position to be treated as being able to look after themselves in the relevant respects".

In this case the bricklayers were held to be workers, and therefore entitled to holiday pay. This has implications for organisations who use people in similar situations--for example data inputters, gardeners, handy persons--who may be registered as self-employed for tax purposes, and who do not have an employment relationship with the organisation, but who might be "workers" and therefore be entitled to paid holidays, minimum wage, and (perhaps very significantly) part-time workers' rights.

The decision in Redrow Homes (Yorkshire) Ltd v Mr B Wright is at www.bailii.org/ew/cases/EWCA/Civ/2004/469.html.

"SELF-EMPLOYED" WORKERS AND TAX

Added 7/10/06. This information updates s.34.1.4 in The Voluntary Sector Legal Handbook 2nd edition.
Where an organisation treats a person as self-employed and pays them gross (without deducting tax and national insurance), HM Revenue & Customs (HMRC) may subsequently say that the person did not meet the criteria for self-employment and the organisation should have operated PAYE. In this situation the organisation can be held liable for the full tax and national insurance it should have deducted. The tax and NI will be computed on a different basis from ordinary PAYE, resulting in considerably higher payments, and the organisation would also be liable for late payment interest and penalties. Altogether the amount due can be more than twice what would have been payable if PAYE had been operated properly in the first place.

Even if the self-employed person has declared the earnings and paid tax and NI on them, the organisation can still be held fully liable.

Where the organisation is held liable, HMRC may (but does not have to) give a credit for the tax and NI already paid by the individual as a (supposedly) self-employed person. Or, if HMRC does not give credit and the organisation has to pay the full amount, the individual can claim back from HMRC the tax and NI they have paid. But there are time limits on the right to claim back such payments.

A decision of the Special Commissioners of the Inland Revenue in June 2005 confirmed that HMRC does not have to give credit for tax and NI paid by the individual--even though in this case it was too late for the individual to claim back the payments he had made. There was effectively double taxation: the individual had already paid tax and NI as a self-employed person and could not claim it back, and the organisation was held liable for the full amount it should have deducted. The Commissioners did suggest that HMRC voluntarily negotiate a settlement giving credit for tax already paid by the individual--but there was no obligation on HMRC to do so.

The decision in Demibourne Ltd v Inland Revenue is at www.bailii.org/uk/cases/UKSC/2005/SPC00486.html.

The moral of all this is that an organisation should always operate PAYE unless it is 100% certain the person genuinely meets the "tests" for self-employment, and the relationship with the person is genuinely in the nature of self-employment. For more about this, see www.hmrc.gov.uk/employment-status/index.htm.

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