Categorized | ir35 rules, PAYE

Beware the would be employee

Beware the would be employee

There have been a number of cases in recent years, the majority of which have been employment tribunal hearings, involving the disgruntled self-employed claiming employment rights against their customer/client and succeeding.

Such instances normally arise when the client seeks to terminate or reneges on previously agreed contractual terms thereby aggravating the self-employed person(s).

In the recent case of The Athenaeum Club v HMRC & Becaglia, heard in the First-Tier Tax Tribunal, such actions led to the “client” being liable to £7,300 PAYE and NICs for the two years ended 5th April 2005 notwithstanding any interest or penalties.

Mr Becaglia was originally interviewed for the post of Fitness Manager at the Athenaeum Club but his experience was recognised as being useful to growing the business of the club and he was subsequently offered the position of Assistant Manager with a salary of £22,500, which he duly accepted. On the agreed start date, however, Mr Becaglia expressed concern that full time employment would hinder his business interests and he renegotiated his position.

The Athenaeum Club asserted that an agreement existed with Mr Becaglia’s business “P3/Propaganda”whereby the club would be invoiced on a monthly basis for the provision of Mr Becaglia’s consultancy services. Whilst invoices were raised by “P3/Propaganda”, which included VAT, the amounts represented twelve equal instalments of an annual fee of £25,000 and payment was made direct to Mr Becaglia. All expenses that were made on behalf of the club were reimbursed to Mr Becaglia.

Mr Becaglia advised on projects and areas of potential growth for the club but the club supervised and decided upon tasks and duties. He worked on a daily basis at the club’s premises but he did have discretion over his working hours.

On 25th January 2005, the club entered into a settlement following Mr Becaglia’s claim for unfair dismissal. The agreement stated that Mr Becaglia was an employee from 7th July 2003 and that the club undertook to pay income tax and NICs as required. Mrs Jones, a manager at the Athenaeum Club and who also represented her employer at the hearing, said that the agreement had been reached on solicitor’s advice and was a commercial decision to curtail expensive legal costs. The agreement had been ratified by the Managing Director in Mrs Jones’ absence but she maintained that had she been present the term “employee” would not have been used.

The Tribunal agreed with HMRC that the settlement document carried significant weight and made it clear that Mr Becaglia was an employee. It was not enough, however, to determine the status issue but when other status factors were considered, i.e control by the club, lack of financial risk and integration, the same conclusion was reached.

Whilst it was accepted that Mr Becaglia conducted other business outside of his role at the Athenaeum Club, the Tribunal found that it was entirely feasible for an individual to be employed in one capacity whilst simultaneously self-employed in separate ventures.

In reaching their decision the Tribunal noted that it had done so with reluctance as it seemed that Mr Becaglia had deliberately manipulated the situation to his advantage and left the club holding the baby.

This case highlights the need for proper contractual terms and conditions to be drawn up and agreed upon from the outset by both parties together with professional advice. Periodic reviews of a workers’ status should also be carried out to satisfy both the engager, worker and ultimately HMRC that a worker is genuinely self-employed. Had the Athenaeum Club done so they would have saved themselves a lot of time, hassle and money.

Seb Maley is a Freelance Serves Manager at Qdos Consulting
© 2009 All rights reserved. Reproduction in whole or in part without permission is prohibited

Image: Angry_Bread_Large by Psycholabs

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