Is the tide changing for contractors?

Experts are expecting an onslaught of legal action from contractors who have been classified as workers, after a settlement was reached with HM Revenue & Customs (HMRC) for thousands of pounds.

A marketing and business development consultant lodged a claim at the Employment Tribunal for £4,200 in unpaid holiday against HMRC and four other parties earlier this year. She argued that it was unfair to be treated as a worker for tax purposes whilst not being given workers’ rights in return.

Under the IR35 rules, which were introduced in April 2000, freelancers who work through a personal services company for a third party are required to pay tax and national insurance as if they were employees.

Initially, contractors decided whether they fell within IR35. In April 2017, the law was changed to require public sector organisations to determine the tax status of their freelancers instead. In this case, HMRC engaged a consultancy company for marketing services. When the tax rules changed in 2017, HMRC analysed the relationship using its Check Employment Status for Tax tool and determined that IR35 should apply. The consultant argued that, as she was now deemed an agency worker, she should be entitled to holiday as if she were an HMRC employee. The parties settled on the morning the tribunal was due to start.

This case sends a very clear message that if contractors are treated like workers then they should receive worker entitlements. Given the numbere of public sector contractors who are affected by this type of arrangement, it is expected that this settlement will give rise to a number of similar challenges.

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