TaxCorporate TaxEmployment ruling could affect tax status of one million workers

Employment ruling could affect tax status of one million workers

Businesses set to pay PAYE instead of Schedule D tax after Supreme Court ruling

A SUPREME COURT judgment on the employment status of contractors could affect the tax liabilities of one million workers and a large number of businesses, experts have claimed.

Car valeters who carried out work for Autoclenz took the company to the Supreme Court to claim they were employees. The company claimed that substitution clauses in the contract – which place an obligation on the individuals to provide services when they were unable to – proved that the individuals were not employees.

However, the court ruled that these clauses were not a true reflection on the workers’ employment status. The judges said that tribunals should take into account the expectation of the parties and the bargaining power between the parties to decide whether the workers had a choice in signing the contract. These factors could trump the written agreement, the court added.

This ruling means that “the foundations of employment status have been rocked to their very core”, MacIntyre Hudson claimed.

Alastair Kendrick, employment tax director at the firm, said that many businesses had used substitution clauses to protect themselves from paying PAYE and HM Revenue & Customs has had trouble proving that individuals are, indeed, employees.

“We are talking about one million workers being affected,” Kendrick added. Many of these individuals will be in the construction industry, he said.

“This raises issues for the employer,” Kendrick added. “Many will be now be paying PAYE rather than Schedule D tax. They can expect a knock on the door from the taxman for retrospective taxes – this can go back as far as six years.”

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