In the past, most farming businesses had several farmworkers on their payroll. However, times have changed and many businesses rely on family members with help from contractors at busy times.
Employing staff has got more complicated in recent years – details of wages paid must be reported to HM Revenue & Customs (HMRC) each week or month under the Real Time Information system, and most employees now have to be enrolled into a pension scheme. It is therefore tempting to treat casual workers as self-employed so that this administrative burden can be avoided. However, as HMRC regularly point out, self-employment status is not a choice and can insist that workers are put on the payroll.
In this article, we consider some of the factors HMRC will consider if they challenge the status of your workers. There have been numerous court cases and tax tribunals over the years which provide guidance on the factors to take into account:
1) MUTUALITY OF OBLIGATION
In simple terms, this asks whether the farmer is obliged to offer work each week and the worker is obliged to accept it. An employee is obliged to turn up each day and the farmer has to find work for them. A self-employed person has the right to say they are not coming next week because they are working elsewhere and equally the farmer can say that there is no work next week.
2) RIGHT OF SUBSTITUTION
A self-employed person can usually send along a suitably qualified replacement to do the work, whereas an employee will have to do the work personally.
3) OPPORTUNITY TO PROFIT
An employee is generally paid per hour, whereas a self-employed person can usually make more money by performing the tasks quicker or more efficiently. For example, a sheep shearer is normally paid per animal rather than for the time spent shearing.
4) PROVISION OF EQUIPMENT
If a contractor provides major pieces of equipment to perform his work, it is usually an indication of self-employment. An employee will normally only provide small tools or protective clothing but other larger equipment is provided by the employer.
In general, a self-employed person can decide when and how a task is performed whereas an employee will be more closely supervised.
6) METHOD AND FREQUENCY OF PAYMENT
An employee is normally paid at fixed intervals e.g. weekly or monthly, whereas a self-employed person will raise invoices when a particular task is complete. If you have self-employed individuals working in your business you should consider the above factors and take advice if you feel there is a risk HMRC would deem them to be employees. The cost of the inquiry and PAYE due can be expensive.