It is clear from HMRC announcements and activities over recent months, that general enforcement activity is increasing, and certainly some of this increased activity is focused on freelancers, contractors and self-employed professionals.
IR35 enforcement is NOT enough!
We have had the increased IR35 enforcement activity coming out of the IR35 Forum activity. However, we have also seen an implicit recognition that HMRC can’t achieve what they want to in this area, with IR35 enforcement alone in the Controlling persons consultation. And the recent Government Procurement Policy Notice, requires public sector organisations to provide ‘required assurance’ in relation to payments to individuals not taxed via the payroll (i.e. contractors, freelancers etc).
Targeting of sectors.
Additionally, HMRC have recently targeted certain sectors and professions for individual enforcement activity including the legal profession, medical professional and high net worth individuals. In this environment of heightened HMRC enforcement, it is easy for self-employed individuals to feel both undervalued and at risk. Not a great combination!
My view remains, even with all of this increased HMRC focus, that it is relatively easy to demonstrate self-employment status provided, obviously, you are genuinely self-employed.
Peace of mind?
An important element of doing this though is going through an appropriate ‘assessment’ process and then documenting this in a robust way. Once done for each assignment, contractors and freelancers should be able to genuinely rest easy, knowing the most important tax protection issue is dealt with, and get on with focussing on their customers and clients.
The most important piece of advice a freelancer or contractor will ever pay for…..
So what are the key elements of demonstrating self-employment status?
There are two in my mind – assessment of the status and then appropriate documentation of that assessment.
In terms of the assessment element, unsurprisingly I would always advocate using an appropriate specialist to be guaranteed that the assessment itself is right. Employment status is ultimately a matter of employment case law, albeit that this determination then has fundamental implications for an individual’s tax position. So I would always use advisors who are employment law specialists to ensure the assessment process is right.
This is a very specialist area of law and one that needs the right level of expertise, experience and skill. Many contractors and freelancers are reluctant to spend money on this advice and in these difficult times, that is understandable. I would argue that this is probably THE most important piece of advice a freelancer or contractor will ever pay for.
Making the right choices.
Protecting your employment status as a genuinely self-employed individual is, I feel the single most important tax planning action that you can take. Getting it right and then knowing enough to be able to keep behaving in the right way as a self-employed person is key.
The Importance of dcumentation.
In terms of the documentation element of the process, this is something which is often overlooked and, if not done properly, could render any advice worthless. It is key to ensure the contract being worked under, the working practices operated, and the process gone through to assess these facts are all documented at the time of the relevant assignment / relationship.
In our experience the individuals who have the most problems with HMRC are ones that haven’t documented what was happening at the time. After the event ‘recreation’ of an assessment and documentation process is doomed to failure in most cases.
Conversely, the cases which have been picked up by HMRC, and then quickly closed, are often those where robust documentation of the employment status assessment process from the time of any assignments, is available right at the outset of any enquiry.
To get into a position where you can easily demonstrate your self-employed tax position is very easy for individuals, who are genuinely self-employed. The current increase in HMRC scrutiny should not worry those who are self-employed as long as they take some simple steps to demonstrate this.