Why false employment is the new false self-employment

False Employment is the new False Self-Employment and no, you haven’t read that wrongly, writes Carolyn Walsh, a director at CWC Solutions.

For many years, umbrella companies claimed to have the power to make all workers self employed, yet HMRC changed a few lines in existing legislation in 2014 and that was enough for some of them to back away from their previous convictions.

Since April 2014 when Agency Legislation was amended, hundreds of thousands of workers have been, often forcibly, converted to employed earners with income being treated under PAYE without any employment status testing at all. 

Now, the truth has been exposed: umbrella companies have no effect whatsoever on employment status and are not Adjustment Bureaus with any kind of supernatural powers.

This also means that if genuinely self-employed workers are paid under PAYE, this doesn't change their underlying employment status. Whereas if a worker was falsely paid on a self-employed basis, he or she can apply to HMRC and if necessary an employment tribunal, to have income deemed to be one of employment income along with any ensuing employment rights.

Yet, HMRC will not entertain the idea of a genuinely self employed person applying to have income that has been treated under PAYE deemed to have been earned on a self employed basis (I asked that question of a head of policy at HMRC, so that comes from the horse's mouth, so-to-speak). However, it is certain that work expenses which may otherwise be disallowed for tax relief will be allowable for those workers, and the deduction of a fee and the Employer's NI contribution that all PAYE umbrella company workers suffer, is an expense paid in the process of earning that income and therefore becomes a tax deductible expense too.