Squeezing the self-employed: Andrew Bibby on moves to make it even harder to work for yourself

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SELF-EMPLOYED people starting out in business in one of seven named occupations or industries will be more likely than others to have their employment status investigated and challenged, if a recommendation in a newly published joint Inland Revenue/Department of Social Security report is carried out.

The industries and jobs named are film, television, broadcasting, haulage, construction, lecturers and peripatetic teachers.

According to the report, local inspectors may want to review whether people entering self-employment in these areas should be reclassified as employees. Receipt of the Inland Revenue form 41G (the form that newly self-employed people submit at the start of their business) would be the trigger for this review, which the report suggests should be at individual inspectors' discretion.

The borderline between what constitutes self-employment and what is employed work has long been a contentious one. In general, the self-employed benefit from a more generous tax regime, including the ability to set against tax expenses incurred 'wholly and exclusively' for the business (employees have to meet the much tighter 'wholly, exclusively and necessarily' formulation).

The self-employed also benefit from lower National Insurance contributions, although conversely lose the right to unemployment benefit and the protection of employment legislation.

The Inland Revenue and DSS both have the power to reclassify self-employed people as employees. Until 1987, the two departments operated independently, leading to the absurd situation where individuals could be treated differently for tax and national insurance.

Since then, a 'common approach' has meant that an employment status decision taken by one department should be automatically accepted by the other. The new report investigates how well the common approach is working in practice.

While the authors say there is no evidence of widespread inconsistency, they do identify a number of individual cases where the Revenue and DSS have taken opposing positions.

Employers or individuals who want clarification on employment status have the option of contacting either the Inland Revenue or the DSS.

While the 'common approach' should make the choice immaterial, an anomaly remains in that the appeals procedure in each case is very different. Not surprisingly, the report declines to say which of the two departments has been the more generous in its interpretation of the law.

Ian Lorimer, a vision mixer working in film and television who was reclassified by the Inland Revenue as an employee, successfully won his fight to remain self- employed in a Court of Appeal judgment last November.

Stage actors had won a similar battle a few months earlier, when actors Alec McCowen and Sam West convinced the Revenue Special Commissioners that the tax authorities had been wrong to treat new entrants to the industry after April 1990 as employees.

However, although actors appear now to have won their fight to be taxed as self-employed, their situation shows the complexity of the issue (and the limitations of the Revenue/DSS common approach) since they normally pay National Insurance at the Class I, or employee, rate. A number of other occupations, including priests and office cleaners, are also subject to different DSS and Inland Revenue rules.

The new Revenue/DSS report rules out detailed checks on the status of all new self-employed people. However, new entrants to the seven industries identified may have particular cause to read carefully the relevant leaflet IR56/NI39, 'Employed or Self-Employed?'.

(Photograph omitted)

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