Watch how you hire advisers
First published in Independent Practitioner Today in April 2023.
Solicitor Robert McCartney has a warning to everyone who works as or who uses freelance workers – including ‘independent’ doctors.
HM Revenue and Customs (HMRC) is currently making a loud and very public statement about the role of freelancers through its prosecutions of television personalities including Gary Lineker, Lorraine Kelly, Kaye Adams and Eamonn Holmes.
Get it wrong and there may be a large amount of additional National Insurance to pay.
To date, the tax department has lost two, won one and, in the case against Gary Lineker, the game is still in play.
This is a warning to everyone who works as and who uses freelance workers and independent consultants, be they other doctors, businessmen or tradesmen.
Healthcare businesses often bring in people who are ‘self-employed’, but in fact work solely for the same person, do regular hours every week and cannot substitute someone else if they are away.
Are these people really self-employed?
If you are engaging people in this way, are you confident that the arrangements you have in place are suitable and could withstand scrutiny by HMRC and/or employment tribunals?
It is not just an issue about tax, but also the employment rights of the person doing work for you.
Why use independent workers in specialist advisory roles and freelance workers?
Many businesses will hire in others to help manage specific projects and tasks. These people are a great resource for bringing in expertise which may not exist within the employed team.
Some common examples within the health sector are advisers on quality and governance, project managers, restructure support, book-keepers and additional clinicians.
Why could this be a problem?
This method of accessing additional support is recognised as an important part of the economy. But it can be abused.
HMRC is concerned about tax avoidance, and using these structures for less informed, often young and junior staff has been deemed exploitative.
Significant fines and employment liabilities could arise for the business inappropriately using these structures.
What questions should you ask to determine if an individual is independent?
This list has been produced to help any private doctor’s business considering, or currently using, independent workers. It will help them decide if they are engaging an employee or a truly independent person.
1. Is the individual responsible for how and when they work?
This is easier to evidence with senior roles and subject experts who are being used to deliver outcomes. The greater the level of control you have over them, the more likely that they will be deemed an employee.
There may be some inevitable limitations on this due to the nature of the role required.
Opening hours, security requirements, industry standard practices and defined methodologies to deliver the outcomes may be further considerations which may limit how and when someone works, but not to the extent that they deprive them of independent status.
2. Do they work through their own company or are they an individual?
Many individuals establish personal service companies (PSCs) to act as an intermediary between themselves and the client business.
The authorities will look beyond this to the actual relationship, as demonstrated with the celebrities mentioned above, but it is a useful indicator.
Evidence that the PSC has other contracts, possibly additional employees and understands the liabilities they are adopting will be relevant.
3. Does the individual provide a defined service?
Employees will work in accordance with their job description and specification. Although these should be well defined, in reality it is known that their roles often evolve and change in response to meet the demands of their team and the employer. It is rare for these to be strictly limited.
Independent workers should be instructed to provide specific services. These are normally defined in a service specification with the focus being upon the delivery of detailed objectives.
There is rarely variation to this and, if there is, this should be clearly documented.
4. Can they send someone else to do the work?
This is often referred to as substitution arrangements and it is easier for some to do than others.
Many independent medical consultants work alone and do not have access to alternatives. However, the focus would be on whether they have the legal right to send an alternative.
In addition to helping to assess the legality of the structure, including provisions of this nature will help with business continuity. It should give you assurance that the work will be completed even if the person becomes unavailable.
5. Can the individual work for other clients?
This is another question which goes to one of the core issues of whether there are too many restrictions on a person to be deemed independent.
A reasonable approach may be applied here to restrict working for competitors and ensuring confidentiality.
6.Would HMRC consider the individual to be an employee for tax purposes?
Use the tool produced by HMRC found at www.gov.uk/guidance/check-employment-status-for-tax to get an initial view. The tests relating to taxation and employment statuses do differ.
How do you reduce the risk?
Once you are confident there are good answers to the above points – because they can answer ‘yes’ or they can clearly explain why they may be unable to answer in the affirmative – the best security you have is to enter a contract for services from the individual.
This is not conclusive, because what you actually do and what is written could be very different and HMRC will test that.
The person providing the required service would normally provide the contract, but in some cases it could be produced by the person requiring the service.
This is more probable following a competitive bidding or quotation process which included the terms and specifications that will need to be delivered.
When reviewing or producing a suitable contract, consider the following issues.
- Whom are you contracting with? Is it a company or a person?
- Is the contract for a defined and limited term or is it dependent on specific deliverables?
- Have you checked any necessary compliance obligations on the contractor and are these detailed in the contract
- Do the specifications reflect the requirements of the business?
- Are payment arrangements appropriately detailed? How will fees be calculated, when will invoices be raised and will there be any offset or clawback arrangements?
- How will you manage disputes and issues when they arise?
- Is there a substitution clause?
- How is intellectual property to be managed and who owns any products, services, documents or the like produced during the period of engagement?
- How is liability managed? Are there indemnities and does the consultant have suitable insurance or indemnity cover.
These do not need to be excessively complicated contracts, but it is important to ensure that they give you the protections you need.
Get an accountant’s and/or lawyer’s advice to review any relationships of this nature you currently have or may be considering.
Having a suitable contract to protect the parties is paramount. And it will give everyone confidence if HMRC starts making inquiries, provided you have been complying with the terms of the agreement.