Due to a rise in the number of employment tribunals and legal claims against employers, there is a temptation to treat individuals
as self employed consultants, rather than employees. As well reducing employment risks for the company, both the individual and company may be able to reduce their tax bills.
This articles takes a look at the issues, using James Bond as a case study.
Factors to consider
Clearly there are a number of factors to consider to determine the employment status of an individual. For tax purposes, many of these factors come from case law, but also legislation and HMRC manuals. While the list of factors is extensive, we take a look at some of the key points:
1. Supervision and control
It is generally recognised that an individual who is under the direct supervision and control of another person within the company tends to be an employee. We all know that James Bond is a renegade, going off doing his own thing, often against the direct orders of 'M'. However M and others within MI5 do provide instructions, send him on specific missions, direct what he should do and when.
Generally a self employed person brings their own equipment to do the job, whereas an employee will be provided with the tools necessary. Over the years, James has been provided will all manner of equipment, gadgets and cars. Most of which were lost, trashed or he failed to return, nonetheless it is the property of MI5 - "This time, bring it back in one piece 007"!
3. The intention of the parties
What both side intend the relationship to be is often a key factor in determining the employment status of an individual. James says many times he is working "for Queen and country". MI5 and M often call him an asset and M is often keen to point out whom is in charge of who.
4. Employment rights or benefits
An individual with the rights and benefits of an employee is, by implication, likely to be an employee for tax purposes. James clearly never wants to take any sick leave, nor is he looking for paternity leave. He does however have quite a collection of company cars and what must be the most expensive medical insurance around.
One of the key indicators of self employment is the right and use of substitution. A self employed person may send a suitably qualified person, such as an apprentice or colleague in their place if they are unable to attend. Employees of course cannot. So what about James Bond? Well clear there is no substitute!
So from this we have concluded (I think) that James Bond is rightly treated as an employee for tax purposes.
But what if he set up his own limited company to work through? Wouldn't that avoid all of these issues?
Well actually, a recent change in the law means that government departments and other public bodies are responsible for determining the tax status of individuals, even where they are using their own limited company. James would still pay tax as if he was an employee.
So are all movie heroes employees? The situation for Iron Man and The Avengers is clearly very different, but let's not start that analysis now. After all, in any case that must be a US tax issue!
For more advice about employment tax issues, please contact Wisteria's tax team