In the wake of the news that some online estate agencies are about to be hauled through the courts for allegedly falling foul of HMRC rules on self-employed agents, it’s no surprise that the industry is now scratching its head a bit at what this may mean for the self-employed or ‘hybrid’ sector.
I’ve spoken to dozens of agents in recent weeks with the same concern – what constitutes being ‘inside’ or ‘outside’ IR35? While developing our self-employed agent proposition, it’s probably no surprise we’ve become pretty familiar with the IR35 rules. In fact, we’ve invested hundreds of hours and spent a lot on lawyers to ensure our agents fall on the correct side of the regulations.
But with so much misinformation out there, it’s the agents who I feel for – many in an uncertain and frustrating position, particularly those partner agents who have had life altering changes enforced on them by high profile agencies in recent weeks.
We should have empathy for agents that sign-up in good faith to a way of working that is then suddenly pulled from under them. And much of this uncertainty and change stems directly from the central consideration of ‘IR35.’
So, what exactly is IR35?
Surprisingly to some (perhaps given the media attention it’s had recently) IR35 was first introduced in 1999 as tax legislation that deals with the question of self-employed contractors that HMRC deem as employed to the extent of employment law. HMRC say that such a practice is used by some companies to avoid tax such as holiday pay, maternity and paternity pay, statutory pension contributions and sick pay. It may also be used to avoid employer liability where, for instance, unfair dismissal is a potential issue for them.
In short, it’s a general anti-avoidance rule that looks through what you say someone’s doing and looks at what they’re actually doing. If they’re an employee in all but name then IR35 will apply, whereas if they’re truly independent it will not.
Multiple industries are now in HMRC’s crosshairs on this subject and the notable ones are food delivery (Deliveroo), taxi drivers (Uber) and more recently, courier drivers (Amazon) – and now, self-employed estate agents of a certain variety (I’ll come back to that).
Why do HMRC care?
HMRC estimates that the Treasury loses around £1.3bn each year from those businesses treating their earnings as ‘outside IR35’ rather than ‘inside IR35 as they should. Importantly, rule changes in the last year now place the legal responsibility on the company not the contractor and this means potentially massive retrospective bills for those enterprising companies that thought, incorrectly, that they would be able to save money by operating a self-employed workforce in the same way that they would operate an employed workforce.
But what are the tests? What constitutes being ‘inside’ or ‘outside’ of IR35?
Of course the ultimate judge will be the IR35 regulations themselves and the way that these are interpreted by HMRC and the courts. However, advice that Nested has taken from specialists lawyers states that the following four considerations are assessed to ascertain if a company is ‘caught’ by the IR35 rules:
Control
How much control does the company exert over the contractor?
Predominantly, does the business itself dictate the day to day of the worker in question. In the case of estate agency, does the worker work a regular week, with leads sent to them that they cannot refuse and appointments that they may not avoid?
Do they have KPIs to hit that are tightly managed and have implications for non-compliance?
Are they ‘told’ what to do rather than being provided ‘opportunities’?
The more control the company has, the more likely IR35 is to apply.
Substitution
On a day to day operational basis, can someone else (another contractor) simply step in to complete the job? Or is the customer dealing with someone specific?
Mutuality of Obligation
Is the company obliged to offer work and is the contractor obliged to accept that work? If so, IR35 is likely to apply.
Equipment
Does the company provide equipment such as laptops, software etc?
I’ve not written this piece in order to take a side in the self-employed estate agency debate. It’s designed to set out that not all self-employed estate agency roles are the same in the eyes of the law and for it to be helpful as a guide to what’s what in this embryonic sector of ours. Incidentally, Nested are firmly of the view, as are our lawyers, that Nested sit outside of IR35 and that our self-employed model is a legitimate one.
It remains to be seen if others will still be able to say the same.
Alice Bullard is head of commercial at Nested.
Comments (8)
I deal with a number of agents (and other business sectors) who operate with self-employed people, and I feel that whilst there needs to be some protections there are many benefits to both the organisations and the self-employed people. People go in to this type of working arrangement as they like the benefits and flexibility that it gives to them that suits their lifestyle at the time.
This model can work but any agencies that are considering or are currently operating with this model need to carefully consider their expectations of the people that they recruit and how they will be managed. Agencies will need to change their mind set to realise that the self-employed people are not employed and cannot expect them to work in the same way that an employed person would. Management and controls are different and this may not sit well with the way that the agency is or wants to operate, so owners must ensure that the self-employed model is for them and how they want to manage their business. I have experienced on a number of occasions where owners see this as a good way of expanding but do not like the lighter touch management and control process that needs to be in place to ensure that the people are not employees. This can lead to problems of management on a day to day basis and expectations are not always achieved.
In short, it’s a general anti-avoidance rule that looks through what you say someone’s doing and looks at what they’re actually doing. If they’re an employee in all but name then IR35 will apply, whereas if they’re truly independent it will not.
As the article makes it clear this has been since pre millennium and if you trade under the name of the organisation and use their facilities you are an employee. PB claim they have LPE’s under their banner. Slum dunk.
“Nested are firmly of the view, as are our lawyers, that Nested sit outside of IR35 and that our self-employed model is a legitimate one.”
It will be interesting to see if Ms Bullard’s “view” is upheld by HMRC when the time comes…
Even if the service agreement between Nested and the self-employed agents effectively establishes the self-employed status, it will be Nested’s actions and expectations, however conveyed outside the service agreement, that could form the true nature of the arrangement.
I hope your actual working practices and service agreement are well aligned with each other.
Presumably, for Nested to be outside IR35 the following apply:-
Control – Very little
Substitution – Lack of continuity
Mutuality of Obligation – Your “contractor”, aka estate agent, can say no
Equipment – All down to your “contractor” to buy, maintain and upgrade
I would be curious to know if Nested advise their clients of Nested’s employment relationship with their “contractors”, cannot see any info about the true working relationship on their website. I wonder how many prospective clients would shy away from using a firm with such arrangements!
It strikes me that the “contractor” working relationship with Nested works for Nested by way of limiting their employment obligations, yet Nested recognise it could harm their business to disclose such a relationship.
Good feedback, Bosky. The website is due for a refresh and we’re keen to talk more about the relationship between Nested and our agents. Rather than harming business, we think a better commission on the sale price means the seller and agents’ interests are more aligned – hence a better service!
Thanks again, great feedback.
This is going to be very interesting over the coming months.
Does this also mean that self employed mortgage advisers also fall in this category and should be classed as employed, due to fact they are taking instructions from the principal firm?
‘Control’ alone appears a slam dunk for some.