A Question of Control
The off-payroll working (IR35) tests are still relevant despite the blanket approach often in place regarding contractors’ employment status. They must always be applied if you are contracting for a small organisation.
More off-payroll cases reach tribunal, giving a broader picture of how off-payroll status, particularly around control, is defined.
Two recent decisions in the Upper Tribunal closely examined the question of control.
In both cases, the Upper Tribunal upheld First-Tier Tribunal decisions, with one going the way of HMRC, and the other for the contractor. The court was prepared to look beyond the contract in question and consider the contractor’s wider business structure.
A win for HMRC
Robert Lee’s company was contracted to work for the Nationwide Building Society from 2007 until 2014. Even though Lee’s contract contained a substitution clause, the Upper Tribunal did not consider there to be a genuine right of substitution because the Nationwide valued Lee for his specialist expertise and familiarity with the work.
One way to strengthen contractor status is to make sure your substitution clause can be actioned. In the words of one commentator, “give your right of substitution clause teeth”.
The degree of control by the Nationwide was held to be significant, with Lee having to work when and where he was told. In addition, he was required to obtain approval for project plans and his performance was monitored.
The contractor comes out on top
Kaye Adams, via her company, presented a radio show for the BBC during the tax years 2015/16 and 2016/17.
Although there were factors indicating employee status, the Upper Tribunal found that the BBC did not have the level of control that would exist in an employment relationship. Despite some 50% to 70% of Adams’ income coming from the BBC contracts, the Upper Tribunal looked at the bigger picture of her career in the surrounding years when Adams generally acted as an independent freelance journalist.
Up to date HMRC guidance for contractors can be found on its website.
MTD income tax pilot
The pilot scheme for Making Tax Digital (MTD) for income tax is now open for self-employed workers and landlords. The scheme becomes mandatory for accounting periods commencing on or after 6 April 2023, so those who join now will get ahead of the game.
MTD for income tax is not mandatory until April 2023, but if you want to get ahead with the software the pilot scheme is open to sole traders and landlords who meet certain conditions.
The first phase of MTD for income tax will be mandatory if your taxable turnover from self-employment or income from property is above £10,000. If you want to be one of the early adopters in the pilot scheme, there are various conditions that you will need to meet.
Who can join?
You can only join if you are a sole trader with income from just one business, a landlord renting out UK property, or both. If you need to report income from other sources, such as employment, pensions, or capital gains, then you cannot currently join. The other conditions should not be a problem for most:
- UK resident; registered for self assessment, and up to date with tax returns and payments.
Digital records
To join the pilot, you will need to use software that is compatible with MTD for income tax. Be warned that only five fully compatible products covering both self-employment and property are currently listed by HMRC, although this includes two with free versions.
You’ll need to keep digital records of all your business income and expenses, starting from the beginning of the accounting period you sign up for, and send updates to HMRC. At the end of the period, you will submit a final declaration instead of a self-assessment tax return.
If you’re already using software to keep records, you should almost certainly wait for your provider to update their product to be compatible with MTD for income tax rather than switching providers just to join the pilot scheme. HMRC’s list of software compatible with MTD for income tax can be found here.