April’s taxation tsunami repercussions

According to The Times, and particularly since April’s hikes in Minimum Wage and National Insurance, advertised employment vacancies have dropped significantly. In fact, there’s been a reduction in ten of the last twelve months.

Clearly this is not all down to the April changes, but they have undoubtedly impacted.

Estimates suggest a drop in employment vacancies of between 20 – 25% between June 2024 and June 2025. Conversely, listings seeking freelancers, consultants and contractors have ramped up by 20% over the last twelve months. It’s not a coincidence.

How April’s taxation is changing how employers categorise the people who work for them

A client recently discussed with me their need for a short-term hire. They were considering whether to engage a particular individual as a temporary employee or a contractor, as though the two were interchangeable. They’re not.

You will have few problems with HMRC when moving a consultant or contractor onto your payroll. HMRC happily embraces this as it increases PAYE receipts. But they may well scrutinise movement in the opposite direction. Expect problems if someone who was your employee last week is classed as self-employed this week! Or you are the only client a contractor appears to have. Or people you take on to do broadly the same work as existing staff are now consultants.

The status of those who undertake work for you is horribly muddled. Recommendations to unscramble the mess have been studiously ignored by successive governments. Currently, employment status issues turn on legal precedent. And, of late, most precedent cases have pointed in one direction; employment not self-employment.

There are three key categories for those who work for you:

• An employee. An employee is engaged under a contract of employment with about twenty-five key provisions that must be specified in writing from day one. Some are obvious. Who employs me? What as? Where? Others less so. Must I possess a specific qualification? Is there a probation period? Is my employment subject to collective bargaining? An employee undertakes their work personally, turns up when you require, and you control and direct them.
• A Worker. A worker is normally (but not essentially) engaged for short-term, ad hoc, personal assignments. Expressions like ‘casual worker’ or ‘zero hours’ describe them. They don’t have ‘gold standard’ statutory rights like employees. Work may not be guaranteed. They won’t (normally) qualify for certain statutory benefits e.g. unfair dismissal or redundancy. These (and many others) require a minimum period of continuous employment. Workers must still receive appropriate written terms – even for just a few days’ work. However, they may be able to reject assignments – which employees usually can’t.
• Someone self-employed. There have been a succession of recent court battles about self-employment. Unhelpfully, there is no specific definition! Effectively, you are your own boss with full and complete responsibility for the risks and rewards of what you do. If this is controlled or directed by someone else, you are not genuinely self-employed. So, you must evidence you’re in business for yourself, can send someone else to do the work, and you invoice for your efforts, rather than automatically receiving pay.

Why you shouldn’t fall into the self-employment trap

Because self-employment avoids important statutory obligations, it’s understandably attractive for employers. No minimum wage, no holidays, no maximum working hours, no pensions, no sick pay etc. What’s not to like for a client?

Well actually, there’s plenty.

• HMRC are constantly on the lookout for ‘disguised employment’. Both the individual and you, as their proxy employer, may find HMRC pursuing you for unpaid taxes and national insurance. HMRC guidance (also on gov.uk) sets out helpful indicators.
• And… someone who was initially content to be ‘self-employed’ may subsequently take you to an employment tribunal to challenge their status as employment.
• Plus… you still need robust written terms (a document known as a contract for services) which governs the relationship between contractor/consultant and the hiring organisation.
• Also… very few organisations appreciate that it’s a legal requirement to have a data processing agreement where contractors/consultants control or process personal data.

With a complete lack of definition of ‘employment’ and ‘self-employment’, it’s an absolute nightmare.

Couple this with the complication of equally ill-defined ‘worker’ status, and you can see why case after case finds its way to the courts. And impending legislation may further muddy already murky waters, without necessarily providing clearer definitions.

And this is to say nothing of further, confusing, sub-divisions of ‘worker’ you’ll hear being bandied around. Gig, zero hours, agency, IR35, casual, bank, freelance, intern, voluntary, piece work…to name but some.

If saving money now tempts you to make greater use of workers, or self-employed contractors or consultants, do ensure you are well acquainted with all the implications.

Who to ask about all this

Moorepay’s Policy Team can provide guidance to help navigate the swamp. They can also provide suitable documentation for the route you ultimately choose.

Please be aware that, in certain instances, this may involve chargeable consultancy. You will always be advised in advance of any potential costs.

You can contact the Policy Team on 0345 073 0240 (then option 3) or email policy.team@moorepay.co.uk for initial guidance.