UK tax re-classification threat to self-employed

Attempts by the Inland Revenue to re-classify casual and irregular workers as employees will mean big increases in National Insurance contribution (NIC) payments for thousands of UK businesses, according to the Association of Chartered Certified Accountants (ACCA).

The ACCA says the Inland Revenue is under pressure from the Government to reclassify as many individuals as possible from self-employed to employee status. This not only means higher NIC contributions for the individuals (the self-employed rate is seven per cent compared to the 10 per cent paid by employees), it will also mean that the 'employer' will have to pay NIC, currently at 11.8 per cent.

As a result, for every individual who changes from self-employed to employee status, the Inland Revenue will receive almost 15 per cent more of their earnings. This figure is set to rise next year, when Chancellor Gordon Brown's one per cent NIC surcharge comes into effect.

Chas Roy-Chowdhury, ACCA Head of Taxation, said: "If an employee is masquerading as self-employed, the Revenue has a legitimate interest in challenging the arrangements. But this drive seems to be aimed at maximising the amount of national insurance contributions, regardless of the economic reality of people's business activities.

"Thousands of businesses and individuals will be affected, as many of the self-employed do not have the time or resources to argue their case. This will have serious implications, not only for the individuals themselves, but for their so-called 'employers', who will be subject to more expense and further administrative burden.

"The clamp down will not impact the one man companies IR35 bites. The impact will be on self-employed individuals who work for a business. The driver behind all this is national. The Inland Revenue usually approaches the business the person works for, not the individual, as a way to extract additional tax."

The Inland Revenue told UKTECH: "This is nothing new. The Inland Revenue has always looked at the question of incorrect status of workers and taken appropriate action when we find that incorrect status has been applied. Before you can call yourself self-employed there are a series of conditions you must satisfy and if you cannot do so then we would reclassify you as an employee."