false self-employment

The false self-employment (Onshore Employment Intermediaries) legislation, which came into effect on 6th April 2014, is still causing confusion for Contractors – there have been no tribunal or court cases about it yet, so we don’t know how HMRC’s legislation will be interpreted.

However, some light was shed on understanding the legislation by a first-tier tribunal in June. Here’s our take on the decision:


The false self-employment legislation is meant to affect self-employed people who are employed via intermediaries – such as employment agencies, payroll or umbrella companies – who currently only pay taxes under self-employment.

The government introduced the legislation to clamp down on the use of ‘false’ self-employment models, where workers and employers avoid tax and National Insurance contributions, and where the employer avoids their other employment responsibilities.

From 6th April 2014, workers in this situation will have tax and employee National Insurance Contributions (NICs) deducted from their pay at the source by their agency. Their agency will also have a new liability to pay employer NICs.

This new legislation is not intended to affect:

  • Agency workers who work through an overarching employment contract with the intermediary, which covers every separate assignment they get, and are already subject to PAYE and NIC deductions – e.g. ‘normal’ agency workers
  • Contractors with their own Personal Service (Limited) Company who are legitimately self-employed
  • Workers who provide their services wholly in their own home
  • Workers who provide their services wholly at a premises which is not controlled or managed by the client
  • Workers who provide their services as an actor, singer, musician or other entertainer or as a fashion, photography or artist’s model

The legislation is intended to affect:

  • Temporary workers who are self-employed and are supplied by the employment agency, as long as that temporary worker personally carries out the work and is involved in the provision of services to a client. It also extends to those under the control, direction and supervision of one of the parties in the ‘supply’ chain of the labour, or if one of the parties in the supply chain has a ‘right’ to subject the worker to supervision, direction or control, even if in practice this hasn’t happened.
  • The staffing company/agency who holds the contract with the end client (hirer) will be liable for tax and NICs of workers who are supplied by them, or by an intermediary in the supply chain, on a sole-trader/self-employed basis. This is unless the agency can prove to HMRC that those workers aren’t under the supervision or control of anyone.

This means the temporary worker will pay 3% more NIC than they do as a self-employed person and the employing agency has a new liability of 13.8% employer NIC contributions.

Contractors who are placed in a temporary role through an agency need to prove they are genuinely self-employed and not working as a permanent employee.

The latest Tribunal findings

A tribunal decision has been published; although it’s based on the preceding version of the agencies legislation, it’s relevant to the new legislation as it discusses whether the workers were subject to control.

The False Self-Employment legislation applies when:

  • A worker personally provides services to a client
  • There is a contract between the client and someone else besides the worker (the ‘intermediary’) and
  • The services are personally performed by the worker and paid for by the client.

The only way to escape the obligations of the legislation (to pay NIC and PAYE) is to show that the worker isn’t subject to supervision, direction or control by any person, or to prove that the worker already pays NIC and PAYE.

A tribunal has recently considered what ‘control’ means – in the context of the old legislation – in the case of Oziegbe V HRMC.

The case:

Mr Oziegbe was a security guard who had supplied other security guards to construction companies. The case considered whether Mr Oziegbe was liable to operate and provide PAYE and NIC for the other security guards. HMRC alleged they were agency workers, who should have been under Mr Oziegbe’s supervision, direction or control.

Mr. Oziegbe had trained and secured the required licence to act as a security guard and started to work for clients, generally within construction companies, in 2007. He engaged other similarly qualified security guards when he had work he couldn’t perform personally, entering into Contract for Services agreements with them. The contracts included a number of key aspects normally found in a self-employment relationship, including the following in relation to control:

“I will not control or have any right to control how you undertake the services to be provided but I am entitled to lay down standards of quality and a time period within which the works must be completed at the commencement of any particular service. You will be obliged to act upon any assignment instruction provided by me.”

During the hearing, Mr. Oziegbe expanded on the terms of engagement, stating that the workers would periodically leave to work entirely on their own account or with some other operator.

His letter to HMRC, sent in December 2011, was highlighted. In it he confirmed that the security guards he engaged were able to work for as many clients as possible and that he has no direct control, while they are were engaged on a job and that they took their own risks. The amount of profit they made was in their control. He also confirmed that the security guards had been advised to pay their own tax, and evidence was provided that this had been done for at least four of the people engaged.

The HMRC failed to produce any evidence to assert that the workers were supervised, directed or controlled by Mr Oziegbe; and at the hearing the HMRC seemed to accept that Mr Oziegbe’s appeal against the HMRC assessment should be allowed.

The Tribunal’s decision:

  • It accepted Mr. Oziegbe’s evidence that since he was never on the site with them he had no control over the workers
  • It said the most obvious situation where the legislation would be relevant is when the worker “fulfils a role in which it is natural and obvious that the client will exercise control over how the worker performs his or her services.” The tribunal gave an example – in the case of secretaries being provided by an agency who perform an identical function to secretaries that the client directly employs (and who perform all the work practices of that particular client), the control requirement will ‘clearly’ be satisfied
  • So, in plain English that means if the worker does the same job as the client’s employed workforce, you’re likely to find there is ‘control’
  • The tribunal went on to say that the most obvious situation in which the control will not be satisfied is “where the particular service being rendered is one that is extraneous to the basic activity of the client, such that it is entirely natural that the client will have no control or right of control.” The Tribunal gave another example – a construction company that contracts for the servicing of its mechanical equipment. If an independent company services their equipment, the Tribunal wouldn’t expect a worker of the contracted maintenance firm to be regarded as working under the ‘control’ of the construction company. The construction company would tell the worker which vehicles were to be serviced and the worker would ‘do the required maintenance on his own account, and not remotely in accordance with the direction or control of the construction company’
  • The Tribunal emphasised that “the question is not whether the client indicates the particular job to be done, but rather the issue of how it is to be done”
  • In this case, there was no natural connection between security services provided and the construction services. The client company would simply direct the security workers to the relevant access points on site but have no further involvement on how they carried out their work, leaving them to get on with the construction operation.

The Tribunal found the security guards were contract workers and not employees as neither Mr. Oziegbe nor the end clients had control, or the right of control, over how the work was actually performed.

Some commentators believe this case isn’t helpful at all in IR35 enquiries, or any other employment status or false self-employment cases, except where the exact same circumstances arise.

One IR35 expert said:

“Realistically, contractors rarely enter a business that has absolutely no skills that are aligned with the contractor’s. For example, banks typically have their own developers to work alongside financial IT contractors, and engineering businesses typically have in-house engineers working alongside the contractor teams.

“Control is broken down into four areas: how, when, where and what. This case hinged on the ‘how’, because the clients were presumed by the tribunal judges not to be able to tell the security officers how to do their jobs because there was no evidence that the clients had the in-house expertise to do this. ‘Where’ is commonly ruled out as being a neutral factor because most contractors are required to work on their clients’ sites to access IT systems and equipment; or to perform their duties where they need performing, such as on a construction site, drilling platform or survey vessel When’ and ‘what’ tend to be the deciding factors.”

The expert concluded:

“Although being told when they can work might suggest a contractor is controlled, in most contractors’ cases, they can only access their clients’ sites at certain times.

“If a client’s office is open from 08:00 to 20:00, clearly a contractor can only work during these times. But it is a positive IR35 element if they are able to vary the times they do the work between office hours.


“’What’ is increasingly the deciding factor. If a client can decide on whim that a contractor should focus on an emergency project, this demonstrates a high degree of control. However, if the contractor said ‘hold on a minute, I am happy to do this but it is outside of my existing contract so let’s put a new one in place for the duration of this emergency’, then this demonstrates a clear lack of control over what the contractor does.”