Do you find the process for deciding employment status easy?

A recent HMRC report indicates that just one per cent of small or medium sized enterprises (SMEs) experience difficulties when categorising staff as employed or self-employed. We are not convinced that this is the case for care and support employers and we would like evidence of this to share with HMRC. Can you help?

Deciding whether your personal assistant is employed or self-employed for tax purposes is something that we know causes real worry amongst care and support employers, so last year we were very interested to note that HMRC had commissioned NatCen, an independent research institute, to conduct some research into this area.

HMRC research

The research was designed to provide robust evidence on the nature of employment in SMEs; understand how SMEs determine the employment status of their workers; explore awareness and use of the Employment Status Indicator (ESI) tool; and consider any ways in which HMRC can help SMEs classify the work status of their staff correctly.

The results of the research have just been published and some of the most interesting findings include:

  • Virtually all SMEs are confident that they make the correct decisions when categorising the employment status of their workers (97 per cent). However, the qualitative interviews suggest that this confidence does not necessarily correspond with high levels of understanding of employment status, which are mixed.
  • Just one per cent of SMEs say they experience difficulties when categorising staff.
  • When determining the employment status of an individual, 71 per cent of SMEs seek advice from an accountant, lawyer, or legal advisor.
  • Half of SMEs use guidance on the HMRC or GOV.UK websites (49 per cent) and 43 per cent contact HMRC staff directly.
  • 24 per cent of SMEs are aware of the ESI tool.
  • The tool is most commonly used to address any uncertainty SMEs have over an individual’s work status, particularly in complex cases.
  • Those who do use the tool tend to be positive about it: 79 per cent say that it makes it easier to make the right decision when classifying workers and 94 per cent say that it is easy to use.
  • While SMEs tend to find the tool useful, it is not normally relied upon to definitively determine employment status and is often used in conjunction with other sources.

The research involved a telephone survey with 1,722 SMEs. It also included 33 in-depth interviews with 33 SMEs. It is not clear how far care and support employers feature in these figures, however we know that there are some specific issues that can make deciding the employment status of PAs very difficult for care and support employers, because naturally their lives tend to be more closely intertwined. For example, engagers of PA's may struggle to apply some of the traditional ‘tests’ of tax status, such as:

  • Right of substitution – by virtue of the very personal nature of their relationship with their client, it may not be appropriate for an assistant to be able to send someone else in their stead;
  • Where the work is carried out – this is very likely to need to be at the client’s premises;
  • Provision of own equipment – this may well not be appropriate or necessary as the client may have all the necessary equipment in their own home for use, as it is likely that much will be in the form of adaptations fitted within in the property – lifts, hoists, etc;
  • Control – given that care needs are usually very specific and the client will have their own needs and care plan, it is unlikely that the carer will have a great degree of control over how the work is carried out. Indeed, they would be at risk of negligence if a care plan had been agreed and they deviated from it without prior agreement/good reason;
  • Payment/acceptance of risk – most care work is likely to be carried out at an agreed hourly rate.
  • Worker needing to put problems right at their own cost – this hardly seems relevant to someone giving personal care.

Next steps for HMRC?

It will be interesting to see what, if any, steps HMRC take with regards to making the employment status process clearer and easier as a result of this research and we will post any updates to this website. In reality however, we think there are sufficient specific issues for care and support employers to merit them being given special support by HMRC (regardless of what they decide to do more generally). This might take the form of tailored guidance or a more care-and-support employer-friendly tool (this latter point being even more important since the ESI tool has been changed into the ‘check employment status for tax tool’).

What you can do to help

We have made this recommendation to HMRC, however it would be very useful if we could back it up with specific examples of where care and support employers currently are struggling to make an employment status determination for their PA. Please therefore feel free to get in touch to share any experiences that you are willing for us to mention to HMRC in anonymised form.

In the meantime, if you are grappling any tax employment status issues, you can find further guidance on our website.