UK Independent Contractor
A new report suggests a new definition of a UK independent contractor.
These Dependent Contractors would have only one client at a time.
So, this is all starting to fit in quite well.
Two Type of Freelancers
Contractors and freelancers would split into two categories in the future, i.e. Independent Contractors or Dependent Contractors.
Only Independent Contractors could operate through Personal Service Companies.
Dependent Contractors would have their PAYE tax and national Insurance deducted by whoever pays them.
They would be Temporary Employees or Part Time Employees.
Definition of Independent Contractors
The House of Commons Work and Pensions and BEIS Select Committees have come up with the following definition of a UK Independent Contractor:-
The report proposes defining independent contractors according to:
- Whether the individual assumes responsibility for the success or failure of his business;
- Whether the individual can hire others at their own expense;
- Whether the individual has the ability to determine the manner in which services are carried out;
- Whether the individual can negotiate and set the price for their services.
Can You Have Female Independent Contractors?
One thing that stuck out to me immediately (and I’m sure all women freelancers reading this would have spotted this) was the use of ‘his’ on line 1.
Perhaps they feel that women would only qualify as Dependent Contractors.
Maybe they could use a male Independent Contractor to chaperone them at work.
However, that’s a by-the-by for this article.
Contractors Group IPSE
Contractors Group IPSE have been pressing for ages for a definition of self-employment by the Government and so are delighted that one has now been provided.
Their Director of Policy, Simon McVicker, says:-
In our response to the Matthew Taylor review into modern work, we called for a statutory definition of self-employment. We are delighted these Select Committees agree. Clearly defining independent contractor status is the only way to both protect the freedom of the genuinely self-employed and guarantee worker rights for the people who deserve them.
However, the cheers should stop till we are able to find out precisely what this means.
If it means that lots of IPSE’s members, who considered themselves freelancers before, are now considered Dependent Contractors that is surely not a good thing.
Explanation Needs Explanation
Of course, the four criteria are not exactly self-explanatory.
As regards number 1, who else would be responsible for the success or failure of a freelancer’s business if it is not the freelancer himself or herself?
Would every contractor qualify under that criterium?
Hiring Other Contractors
Then in number 2, I’m sure that contractors do have the ability to hire someone else at their own expense, I’m sure that, in theory, they could.
If they do, that would definitely count in their favour.
But if they don’t, would this count against them?
A judge ruled, to HMRC’s chagrin, that if a contractor has a Substitution clause in his or her contract, just because they don’t trigger it doesn’t make it invalid.
It would have to be that the client requests it and the contractor doesn’t provide it before it could it be proved that this was a sham clause and it falls foul of IR35.
The burden of proof is on HMRC.
Will this be the same here?
Supervision, Direction and Control
The third one all relates to control. Does the freelancer decide how a task is done or is he, or she,’ told how to do it?
As regards the 4th one, surely all contractors do that anyway.
They all set out what their rate should be to the agency although they may need to negotiate.
However, they would have to make sure that they tell the agency how much they want and then negotiate.
They shouldn’t be told by the agency what the rate is and then just agree to that.
New Definition of a UK Independent Contractor
So, it seems the Government will use this to clarify what a self-employed person really is?
It seems clear that there will be two distinct types of contractor in the future and they will have to pay very different levels of tax.
But I’m sure that most of you contractors reading this would not be able to say definitively whether you are a UK Dependent Contractor or a Dependent Contractor.
Will this clarify things – or will it just trigger fresh court cases?
Let’s hear your opinions on this development below.
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