Despite increased action by HMRC veterinary practices are still employing self employed vets and nurses without contracts and with little or no regard of the workers actual employment status. Many practices don't realise that, in the case of self employed locums, it is the responsibility of the practice to determine the employment status of the worker and the consequences for getting it wrong can prove costly.
The HMRC can investigate up to 6 years of accounts and render the client liable for any unpaid employers NI over that period and furthermore, if the locum has failed to pay the taxes due, the client could be forced by the revenue to pay any unpaid tax and NI on the locums behalf.
Employed or Self Employed?
The self employed status of workers is not a matter of choice, whether someone is employed or self employed depends upon the terms and conditions of the relevant engagement.
In order to answer the question of employment status it is necessary to determine whether the worker works under a contract of service (employee) or under a contract for service (self-employed). For tax and NICs purposes, there is no statutory definition of a contract of service or of a contract for service. The meaning is totally dependent on what judges say when cases come before them in court.
One important factor when considering the self employed status is the element of a valid contract between the parties. Once it is established that a contract exists, it is then necessary to establish the terms and conditions of work agreed between the worker and the engager and to then apply case law laid down by the courts over the years. The basic approach of the courts is to identify the factors present and weigh thise that point to self employed against those that point to employed.
Relevant factors used to determine self employment status
Recent court cases indicate there is no single satisfactory test governing the question whether a person is an employee or self employed. One must consider all factors that are present in, or absent from, a particular case.
The following factors include the most important ones.
Personal service
If the work is done by one named person only, then the situation is one of employment. If it can be done by any suitably-qualified person, then it could be self employed. This is usually referred to as a right of substitution. In the case of locum vets this can be achieved as follows:
- the practices usual locum agency can be used to provide a substitution, or
- the existing locum (if engaged directly by the practice) engages a replacement to carry out the work in his absence and pays him for the work directly while himself invoices the practice as normal
Issues of substitution were key factors in the case of Tilbury Consultancy Ltd V HMRC. HMRC sought to show that Tilbury was a disguised employee of his end client, Ford Motor Company. His contract was actually with Compuware, to which Ford had outsourced its application management centre. The judgement ruled that because of the right of substitution between Compuware and Ford and between Tilbury Consultancy and Compuware, Tilbury would not be regarded as an employee of Ford.
Mutuality of Obligation
Mutuality of obligation is now a common phrase when dealing with status disputes. The term is from the House of Lords case Carmichael V National Power. In this case the judge ruled that Carmichael was in fact not an employee of National Power because their case 'founders on the rock of absence of mutuality'. The decision was based on the fact that when Carmichael was working for National Power, there was no contractual relationship with the company. The company was offering work when it was necessary but there was no obligation to provide the work and there was no obligation for the work to be accepted by Carmichael.
Mutuality of obligation is also underpinned by the possibility of termination without notice on either side for any reason.
Right of control
The self employed worker works under his own control and not under the control of the client. This does not mean that he cannot be fitted into a rota or that they do not have to follow practice procedure, but it does refer to the manner and method by which the worker performs his duties.
Length of engagement
By itself, the length of engagement may have little importance in determining employment status, although it is more likely that an employee will have an open ended contract. When a person undertakes a number of short term engagement he may be regarded as self employed. On the other hand a person engaged on a short term contract may be regarded as a casual employee. This factor must be viewed in light of all the different aspects of a persons work.
Overview
For practices who wish to engage self employed locums directly they must look at each locum on an individual basis and the indicators of self employed must be present and agreed in a written contract. Anything less, from the HMRC view point, would be inadequate.
Courts will observe first and foremost contracts between the practice and the locum and will uphold them unless they are blatantly contravened. Where contracts have been honoured and given due regard they will generally be upheld by the courts.
What's the alternative?
By engageing a locum through an Employment Business such as Recruit4vets (an agency who pays the locum directly) you will eliminate all this risk as it is the agency who is engaging the locum and not the client. Recruit4vets will:
- fully vet each and every candidate, obtaining their ID, their right to work in the UK, RCVS certificate and references
- supply the locum and client with Contracts
- pay the locum weekly
- remove from the client any liability for tax and NIC's
For more information contact recruit4vets today on 01423 739 010 or email
info@recruit4vets.co.uk
