Employment status exceptions
Situations where the employment status rules vary
We only outline the general rules in our deciding the status of your personal assistant section. For most people taking on a personal assistant (PA) these rules will be sufficient in deciding whether their PA is employed or self-employed. However, there are some groups who have special rules applied when working out employment status.
Here we draw attention to a few of these groups.
If you decide to hire a PA through an agency, you will generally not need to worry about tax employment status or tax and National Insurance (unless the agency acts as a 'finder' of the PA only). The care agency will normally be responsible for deciding the PA’s status and paying their tax and National Insurance (NIC) over to HM Revenue & Customs (HMRC). The PA will usually be employed by the agency rather than you. Instead you will enter into an agreement with the agency which sets out what tasks the PA will cover and the terms and conditions covering your payments to the agency and other important issues.
However, you should be aware that some agencies have been encouraging their PAs to be self-employed in inappropriate circumstances to try to reduce their own costs. This may have implications for you as the ‘end client’ and this is explained below.
Important information about ‘self-employed’ agency workers
In general, most agency workers should be taxed through Pay As You Earn (PAYE) – this is operated by the agency that the worker signs up with, rather than you as the ‘end client’ that the worker is placed with.
Where the agency has to operate PAYE then it also has to pay employer National Insurance in respect of the employee's wages. This is a cost to the agency, however, it is usually covered in the fee that is charged to you, as the end client, by the agency.
In recent years, some agencies have been trying to avoid having to operate PAYE for workers – this means that their costs are reduced, the benefit of which is sometimes passed on to the end client by charging slightly lower fees. They do this by saying that the worker is 'self-employed', so that the worker has to pay their tax and NIC to HMRC themselves and there is no employer NIC to pay (the agency’s only real role then, is to match the worker to the end client).
However, treating a worker as ‘self-employed’ when they should actually be treated as an ‘employee’ leaves the worker in a vulnerable position and means that the government is losing money. Since 6 April 2014, the government have tightened up the rules to prevent agencies being able to do this so easily.
The new rules essentially say that the only time a care agency can escape operating PAYE is where the worker is under NO supervision, direction or control by the end client. As such, and as part of the sign up process, they may ask the end client to complete a checklist or questionnaire, in writing for their records, so that they can establish whether the worker will be under supervision, direction or control (and thus, whether they have to operate PAYE).
If you decide to use an agency to provide you with a PA and you find yourself in the situation where you are asked questions about what supervision, direction or control the worker will be under, you must ensure you answer these questions very accurately and carefully. In the event of an enquiry by HMRC, any questionnaires you have completed will be closely examined and HMRC could come to you instead of the agency for any unpaid PAYE in situations where it should have been operated but was not, depending on their interpretation of the information provided by you to the agency.
You should be aware that from 6 April 2015, agencies must send details to HMRC of workers they place with clients who are not being treated as employees and where they did not operate PAYE. This means HMRC will have much more visibility over agency worker engagements.
HMRC have developed extensive guidance which includes examples of where HMRC would consider that the manner in which the worker provides their services is not subject to supervision, direction or control.
From the guidance, we can see HMRC consider that supervision, direction and control are best defined as follows:
Supervision is someone overseeing a person doing work, to ensure that person is doing the work they are required to do and it is being done correctly to the required standard. Supervision can also involve helping the person where appropriate in order to develop their skills and knowledge.
Direction is someone making a person do his/her work in a certain way by providing them with instructions, guidance or advice as to how the work must be done. Someone providing direction will often coordinate how the work is done, as it is being undertaken.
Control is someone dictating what work a person does and how they go about doing that work. Control also includes someone having the power to move the person from one job to another.
They also give a helpful example of where they think supervision, direction and control would not apply in the context of a PA (see page 14 of the document accessed through the link). However where you give instructions to the PA and have procedures which must be followed by them, it is likely there will be supervision, direction or control over the manner in which the services are provided and therefore a PAYE obligation on the agency.
It may be tempting to give the agency information which means that they do not operate PAYE, as this may mean lower costs for you. However where there is any element of doubt, then it is best to err on the side of caution and tell the agency that the worker will be under your supervision, direction and control, so as to protect yourself as best as possible from any potential problems with HMRC at a later date.
Why else might I need to consider whether the agency worker is under my supervision, direction or control?
Agency workers often work on lots of different engagements and may incur substantial travel costs in getting to their various work locations. If they are not entitled to relief for their travel expenses under the normal tax rules, some of them use a loophole in the law which means they claim relief on their travel and subsistence expenses when it would not normally be available.
From April 2016, the government have tried to close this loophole by saying that agency workers (and other temporary workers employed through an employment intermediary) will be prevented from claiming relief on their travel and subsistence expenses if they are under the supervision, direction or control, of any person, in the manner in which they undertake their role.
As such, from April 2016, you may be asked whether a worker who is supplied to you by an agency is under supervision, direction or control (or the right thereof) in the manner they under-take their work – as explained in more detail above. Please note that, for this purpose, workers are assumed to be under supervision, direction or control, unless it is shown otherwise.
Again, there are debt transfer provisions that you should be aware of in situations where tax is underpaid because of false information about supervision, direction or control provided by you, to the agency.
Important information about agency workers from an ‘offshore agency’
If the agency that you use is an offshore agency, please be aware that in some circumstances, (i.e. where they consider themselves outside the reach of HMRC and do not operate PAYE), you – the end client – may be obliged to operate PAYE.
HMRC’s guidance on the matter can be found in their Employment Income manual.
Although offshore agencies are not as prolific as they once were, it is important to ensure you check whether the agency that you are using has a trading address in the UK. Please remember that the Isle of Man and the Channel Islands (e.g. Jersey and Guernsey) are ‘offshore’ in this context.
When trying to work out if a family member is an employee, you need to apply the general principles of whether someone is engaged under a ‘contract of service’ to the facts of the situation.
If they are an employee, it is important to understand that the existence of a family relationship does not bypass any tax laws – so, for tax purposes, employing a family member is just like employing anyone else.
You should also ensure you consider the minimum wage position and any other employment law considerations.
For National Insurance contribution (NIC) purposes only, if someone is employed by a family member in a private home in which both family members (that is, the employee and the employer) live, then the employment is disregarded for NIC purposes only. This exception will not apply if the employment is being carried out for the purpose of any trade or business by the employer.
The family members that count for this purpose are:
- father or mother
- grandfather or grandmother
- son or daughter
- grandson or granddaughter
- stepfather, stepmother, stepson or stepdaughter
- brother or sister
- half-brother or half-sister
See HMRC's guidance for information about this exception.
Direct payments cannot usually be used to employ a close relative who lives in the same household as the person receiving care, so we would not expect to see this special rule being relevant very often.
You may receive occasional help from family, friends or neighbours. Even though you will not pay them for such help, you may give them flowers or chocolates as a thank you and/or reimburse any out of pocket expenses such as travel expenses – for example if they run an errand into town for you. You may be wondering if there are any tax implications. Let’s look at the rules around ‘voluntary workers’.
Broadly, if you reimburse any actual out-of-pocket expenses the volunteer has incurred then there will be no tax or NIC to deal with for either you or the volunteer.
The expenses paid must be supported by receipts or be a reasonable estimate of the cost. If the expenses paid are more than the actual expenses incurred (or accepted ‘scale rates’ in the case of mileage), HMRC may consider the voluntary worker to be receiving a wage or salary for their services and the payment could be treated either as employment income (meaning you may have to operate PAYE like any other employer) or as other taxable income.
If an individual helps you out on a regular basis, carries out specified duties and is subject to some level of supervision and control, a number of the hallmarks of employment are present. However, there could be other factors pointing away from employment. For example, they may be free to turn down helping you out and can leave when they wish. Bear in mind that an employment relationship need not be set out in a written contract; rather, it can be verbal, or inferred from the circumstances.
In our view, a person who helps you out occasionally, who you give payments to that exceed their actual expenses, will not normally be engaged under a contract of employment. However the payments could be taxable on the volunteer as ‘miscellaneous’ income as confirmed in this HMRC guidance. There may also be further complications, such as in connection with the minimum wage to consider.
With regard to gifts, it should be noted that volunteers can be provided with a token of appreciation as long as it is not high value. However, the gifts should be a genuine, one-off thank you gifts – if there is a sense that chocolates or flowers for example, are expected, hinted at or regularly given, or are a reward for services performed, then they become payment for work done ('payment in kind') and again, their value is potentially taxable as either employment income or miscellaneous income.
Usually a PA who is self-employed will be a 'sole trader' – this means an individual in business on their own account. They may trade under their own name, e.g. Paula Gripes or they may trade under a ‘business’ name e.g. Gripes’ Care Services.
If you want to take on a self-employed 'sole trader', you must be sure that the self-employed ‘label’ is correct before going any further. This is because you will have the responsibility for deciding whether PAYE needs to be operated on the PA’s wages. The rules relating to employment status and the associated status indicators would all apply as usual.
However, a trend has developed over recent years for PAs to supply their services through their own limited company as this can sometimes save them some tax. A limited company is a legal entity in its own right and must be registered at Companies House. Often they are run as one-man-bands and in this situation, the PA is both the owner of the company (the director/shareholder) and the person that the company hires out to provide services (the PA will usually set themselves up as an employee of the company to do this).
From your point of view (i.e. the person taking on a PA who works through a limited company), you must engage the PA's company itself to provide the required care services. In this situation, you must pay the company for its services, usually on production of an invoice (you do not pay the PA directly). The PA should be paid for the work they carry out by their own company. In some ways this makes things easier for you, as it is the limited company’s responsibility to decide the correct employment status of the worker they provide to carry out the care – not yours.
The limited company will need to consider HMRC’s employment status indicators. If the worker would be an employee of yours but for the limited company being in the middle of it all, then the limited company is supposed to tell HMRC and potentially pay them some extra tax, as special tax rules relating to ‘employment intermediaries’ would almost certainly apply (known as the 'IR35' rules). These rules are particularly complicated and professional advice would be needed if this applies, however they are not your concern as the person engaging the company.
Please note that the government have announced that they are going to make changes from April 2020 to make ‘end clients’ take more responsibility for determining whether the IR35 rules apply to a particular engagement.
But the changes should only affect medium and large size businesses who use workers in limited companies, not individual employers like care and support employers.