Recent case sheds light on application of 'control' in false self-employment

Monday 4 August 2014

A recent case brought before a tribunal has shed light on the application of the 'control test' in false self-employment legislation.

Since April 2014 agencies who place contractors working as sole traders have had to demonstrate that the workers are indeed self-employed - something that is done via the control test - to ensure they don't in actual fact fit the description of a professional who is on payroll.

In a case involving security guards supplied to a business to guard construction sites, further insight was given into how this is likely to be applied and interpreted by the courts.

While it had already been decided by HM Revenue and Customs (HMRC) that the workers were not employees of the business, there were questions over whether there was supervision, direction or control (SDC) in the way the services were provided.

Because the case pre-dated April 2014, HMRC was required to prove that SDC existed.

In this instance the business claimed that client companies have no involvement in how the security guards performed their jobs. HMRC had no supporting evidence to prove SDC was present and thus the tribunal ruled in favour of the business.

The case resulted in some guidance on SDC from the tribunal, in the absence of a formal judgement due to the lack of facts.

It was deemed that the "most obvious situation in which the ‘control’ requirement will not be satisfied is where the particular service being rendered is one that is extraneous to the basic activity of the client". The tribunal highlighted this point using the example of a construction company that brings in a specialist provider to service its mechanical equipment. As it has no department dedicated to doing this in-house, workers sent to service the equipment would not be subject to SDC as their activities are not part of the normal range of company activities.

However, while this further guidance is beneficial, the Association of Recruitment Consultancies claims that it does highlight flaws in the system - namely that each case will turn on specific facts.

In most cases, the supply of contractors by an agency does not relate to a specific project that relies on expertise, so the new legislation applies. Many claim this is unfair and puts the self-employed at a disadvantage now the assumption is that SDC exists unless proven otherwise by agencies.

Adrian Marlowe, chairman of the Association of Recruitment Consultancies said, “This is certainly a point of concern as it seems very difficult for genuinely self-employed workers now to find work by supply through agencies, representing discrimination against self-employed workers, with a negative effect on flexibility of the workforce. We have raised this and other issues relating to this legislation with the Exchequer two months ago and are currently awaiting a reply."

There have also been questions over what constitutes evidence when agencies are demonstrating that SDC does not exist.

The Association of Recruitment Consultancies has previously explained that agencies are not lawyers and rely on third-parties to demonstrate SDC. It claims that further guidance is needed to ensure agencies can give HMRC what it needs.

By Victoria McDonnell

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