To minimise costs, businesses can seek to use self-employed workers rather than employees, with the aim of saving on Employer’s National Insurance Contributions and sundry employment rights and costs, such as paid holiday, sick pay, auto-enrolment pensions, etc.
Recent cases involving plumbers, taxi drivers and others in the so-called “gig economy” have highlighted the importance of ascertaining whether a worker is employed or self-employed. Relief milkers, seasonal tractor drivers and part-time grooms often fall into this grey area.
As well as the factors above, there can be other Inheritance Tax/Capital Gains Tax considerations in rural work.
So how do you decide on the nature of the role? Perhaps nothing is written down, but contractual terms and working practices will have been agreed. H M Revenue & Customs (HMRC) have a useful checking tool to guide their view.
Key factors include:
- The degree of supervision
- How closely the worker is integrated into the business, e.g. hiring and firing other staff, interacting with customers and suppliers
- Who schedules the hours to be worked? What happens if there is no work on a given day?
- If the work goes wrong, would the worker be paid for correcting work?
- Is the worker taking financial risk? Can the worker lose money on the task? Is pay according to the hour or week, or for the job?
- Whose tools, vehicle, etc. are used?
- Can the worker send a substitute if needed, with or without the agreement of the employer/customer? Who would pay the substitute?
Many farming families have one of the family working away as a form of farm diversification, under arrangements that can fall very close to the employed/self-employed line, e.g. working five mornings a week feeding and bedding up cattle wintered away from their home farm, using the kit provided, for (say) £15/hour. Employed or self-employed? HMRC would probably say employed and expect normal payroll procedures to be operated. As an aside, as an employee, there is no tax relief on the costs of getting to and from work!
Farm workers are often provided with accommodation as part of the remuneration package, regardless of whether the role is employed or self-employed. If self-employed, the impact on the tax position of the owner of the accommodation could be severe:
- Inheritance Tax – no longer qualifying for Agricultural Property Relief (and thus vulnerable to Inheritance Tax at 40%);
- Capital Gains Tax- no longer qualifying as an asset used in the trade for Rollover Relief or Business Property Relief purposes.
The longer-term Capital Gains Tax/Inheritance Tax cost of achieving a short-term cash saving can be enormous.
Insurance is also critical: let us imagine an accident happens – a fall from a height, a nasty accident in the cattle yard, or whilst exercising horses – whose insurer would pay out, and how long would this take to resolve? Appropriate insurance cover matters, even where those involved are family members and perhaps there is little-written evidence of agreed arrangements.
Ultimately, courts and tribunals can be called on to determine the position based on evidence. Do take advice if reading this has set off any alarm bells – employed or self-employed – it matters!