The Umbrella Companies Blog Archive: November 2008
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All the installments of Determining Employment Status are here:

Determining Employment Status Part 1 "The Right of Control"
Determining Employment Status Part 2 "Financial Risk and Reward"
Determining Employment Status Part 3 "Mutuality of Obligation"
Determining Employment Status Part 4 "Substitution"

Mutuality of Obligation

A man named John Donne is attributed with saying "No man is an island", and mutuality of obligation is all about proving him wrong (strictly in an employment sense).

As a self employed person you need to be seen by the powers that be to be independent, and as an extension of that your own boss. No external source should be responsible for finding you work, by being self employed you take that on as part of your responsibilities.

This is not to say that you cannot accept work that is offered to you by chance, it's just that it is nobody else's responsibility except yours to find that work. On the same theme you must be free to refuse any work that is offered, and that refusal should not impact your relationship with the person or company that offered it. However, they should be under no obligation to provide you with more work in the future (although hopefully quality would have spoken for itself and they will call on you again).

If you are a self employed contractor, once the agreed work is finished to the specifications laid down in the contract you negotiated, you are free to leave without giving notice which is your right, and will help to support your argument for independence.

As you can see, independence appears as a common theme, and it is important to note that it is the appearance of independence that is the key factor over and over again. Just because you have the supposed right to do something, if you never exercise that right it can be difficult to prove. This may seem unfair, but these are the rules HMRC have laid down and we have to abide by them.

Next week we will round off the series with the Right of Subsitution often seen as the main indicator of self employment. In the meantime, have a great week, and I'll try to have something interesting for you on Wednesday.

Hugo
28/11/2008

If you read my post from this time last week, you'll have noted my irritation at wasteful HMRC mailings. We've just received 43,000 first class envelopes from HMRC telling us in a two page letter that the VAT rate has changed from 17.5% to 15%. I understand they had to send something, but one would have been enough.

Hugo
27/11/2008

So with the Pre-budget Report came good news for pretty much everyone; the £120 rebate issued earlier this year has been made permanent and increased to £145 from April, VAT has fallen to 15% meaning the more you spend the more you'll save (although I've worked out what it might mean to me, and it's not a huge amount), and more money to pensioners as a Christmas bonus.

There was additional good news for umbrella companies and the contractors that use them; in what was probably the only news that didn't leak out of the Treasury prior to Alistair Darling's speech it was announced that:

"Following the consultation Tax relief for travel expenses: temporary workers and overarching employment contracts, the Government has decided to leave the current rules unchanged. However, in the light of evidence from the consultation confirming poor levels of compliance in this area HMRC will refocus its efforts to ensure that the current regime is properly applied. If compliance does not improve, the Government may return to this at a later date."

(section 5.104 for those of you who like me are sad enough to have downloaded the whole document (available about half way down this article from the BBC))

Whilst this is excellent news for all concerned, the sentiment is less an endorsement and more a case of "right now we've got bigger fish to fry, but we're watching you". This news doesn't change anything here at Gabem, but I can't help but hope that it encourages those companies playing fast and loose with expenses to pull themselves together and stop taking the risks they do, for their operatives sakes if not for their own.

I'll have another installment of determining your employment status for you on Friday. In the meantime look after yourselves, and drive carefully.

Hugo
26/11/2008

All the installments of Determining Employment Status are here:

Determining Employment Status Part 1 "The Right of Control"
Determining Employment Status Part 2 "Financial Risk and Reward"
Determining Employment Status Part 3 "Mutuality of Obligation"
Determining Employment Status Part 4 "Substitution"

Financial Risk and Reward

Today in the second of my posts on the four key factors that determine your employment status I will be talking about Financial Risk.

As you'll see the ongoing theme in all these posts is independence. If you're independent, chances are you would be classed as self employed. The battle you face is establishing this independence in the eyes of HMRC.

Starting your own business can be an expensive process, and while that can be a pain, it is these costs that begin to support the argument that you are an independent contractor. If the person or company you accepted work from is supplying your tools, or if you are working under their Public Liability Insurance, I don't think HMRC could be blamed for being suspicious. Supplying your own tools and Public Liability insurance on the other hand both point firmly towards self employment as it's clear you are bearing the risk yourself and are therefore more in control of the way you work.

A key point of the idea of risk and reward is that of making a faulty job right. If you've paid someone to do a job, or done a job yourself that isn't up to the agreed specifications, making it right out of your own pocket is the risk you've taken as part of running a business and points towards a status of being self employed. The same goes for completing a job ahead of schedule, if you've agreed a price in a contract and completed the job to specifications in half the time, welcome to the reward part of self employment, you have probably made a handsome profit and you can pack up and move on to your next job, congratulations.

Risk and reward could equally be called loss and profit and if you're self employed there should be a chance of either on each contract you take (regardless of how good a negotiator you are). If you're an employee you are paid a regular amount, be it by the hour, day, week or month; if you work your hours or any overtime you'll get paid, this isn't profit, this is simply the wages you are due and that your contract dictates.

In an ideal world it would be this cut and dried, but due to this being reality that's sometimes not the case. With some contracts, equipment may be supplied, or training may be supplied. This doesn't mean you are automatically an employee, but you must be able to prove your independence through other means, that's where mutuality of obligation comes in, and I'll be covering that next Friday.

I hope that's made the world determining your employment status less murky, if you want to look over the complete list you can find it here.

Hugo
21/11/2008

The volume of wasted taxpayer money we see every month in the form of useless mailings is absurd and in terms of wasted man hours at our end, exhausting. Over the last two days we've received perhaps 16,000 envelopes all of which we dutifully opened, read and promptly dumped in the recycling bin (I'm just glad it was all company post rather than anything that contained personal data as then we would have had to file it).

This is all because HMRC cannot stop automatically mailing us. Each month we receive around 8000 letters about VAT, all of which serve no purpose. All our submissions to HMRC are electronic now (in fact we were invited by HMRC to be one of the first companies that submit VAT that way), whenever there is the option of electronic submission we're always among the first companies to start as it is simply so much easier and less prone to serious error.

We've told them numerous times not to send them so it's not like they are unaware, it's just that their systems can't keep track, there is no box they can tick to turn it off.

As a result we see this money wasted and it's galling; just one months VAT mailing alone we estimate to cost £2400 (10p for the letter and envelope 20p for the 1st class postage (that's assuming they get a discount) and 8000 letters), and that's just for us! For several years now we've been paying extra for recycling bins based on the volume of HMRC post we get each month.

Those of you concerned about the environment might also consider the carbon footprint of all this, wasted paper, the fuel used to deliver the mailing, and the energy required to print and stuff all the envelopes, it's a crazy waste.

All this costs money, yours and mine and looking at the larger picture, it's not small amounts, it's tens of thousands with just our company alone, all for the sake of a tick box and what I am sure is some relatively minor reprogramming. It could probably all be done for a fraction of the cost of sending us the mail in the first place.

That's it for now, I'll be back again tomorrow with another thrilling part of our series on determining self employment. I'm sure you can't wait.

If you want to get in touch on today's topic or any other you can below.

Hugo
20/11/2008

All the installments of Determining Employment Status are here:

Determining Employment Status Part 1 "The Right of Control"
Determining Employment Status Part 2 "Financial Risk and Reward"
Determining Employment Status Part 3 "Mutuality of Obligation"
Determining Employment Status Part 4 "Substitution"

The Right of Control

Over the next month or so I'm going to be covering more about how the HMRC determines whether you are classed as employed or self employed. I'm not intending this to be just a re-hash of our self-employment guidelines as although they are accurate it's rarely a cut and dried case of you definitely are, or you definitely aren't.

This week I will be focusing on "the right of control".

Having the right of control (or control from hereon in) boils down to the idea that although you may have accepted an assignment, and therefore have to abide by the criteria laid down within it (such as the deadline of the work in question, the specifications that the work has to meet, and any relevant health and safety aspects), you will determine how the assignment is carried out. That means the hours you work (obviously if the site is only open set hours you are not in breach of the control aspect as long as you decide when you start and finish within those hours), you are responsible for making right any part of the assignment that doesn't meet the previously agreed specifications and bear the financial risk for putting it right (I'll be covering the other aspects of financial risk next Friday) and you cannot be moved between jobs without your agreement.

There are of course conditions that could show that you are not in control, and unlike the examples in the previous paragraph most of these are straight forward enough that they don't need too much of an explanation. I am just going to go ahead and list them:

- You may be entitled to receive overtime

- If you can be moved to different sites on demand

- If you are told how to carry out your work

- If you may be entitled to training from the client for the work you do

- If you have to ask permission to take holiday

- If you are entitled to statutory payments like sick or maternity pay again from the client

All of the above show some sort of relinquishment of control or reliance on the client for benefits of some kind, increasing the chances of you being seen as employed by the person or company you have a contract with rather than as an independent self employed contractor.

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This being Children in Need we've been carrying out various fund raising activities all day, from bizarre forms of musical torture to Steve Girdler (who you'll remember from a couple of posts ago) volunteering to be the victim of a leg waxing (and I should add that he is not usually of the leg waxing persuasion) that raised £150 just on it's own. Overall it's been a good day and everyone apart from Steve had some fun whilst raising the money.

That's it for another week, have fun this weekend and speak to you next week

Hugo
14/11/2008

First things first, sorry for the lack of posts last week (and for leaving you with that picture to look at), I managed to poison myself with some food that was apparently less fresh than it looked. The lesson here is even if you cook it thoroughly it can still make you very ill.

Getting back on track, one of the questions that was sent in recently asked for an explanation of the best way to request your holiday from the Gabem Umbrella Company. With the holiday season approaching this seemed an especially topical question, so we've put a page together as a simple how-to of requesting holiday pay. It will go into all the detail you need to make requesting holiday pay as trouble free as possible. If there is something you would like us to add let me know and we'll add it to the guide here .

It's more important to bring this up earlier this year than in previous years, as unclaimed holiday pay needs to be requested to be paid before the end of each tax year (otherwise it will be lost), and Easter falls after April in 2009. That means Christmas might be one of the most convenient times to claim your holiday pay before year end at the beginning of April.

It's pre-budget report time here again (or at least that's what the news services are telling us), so as usual we're waiting with baited breath to see what delights the government has for us. Ironically this year we may have some slightly more positive news for a change as the government looks to boost the economy.

Once it's out and we've given it the once over I'll be sure to let you know our take on it.

The observant or frequent visitors amongst you may have noticed that Susan has updated her legal bits this month she's talking about contracting during an economic downturn, certainly something worth taking a look at.

As always feel free to get in touch, we'd be happy to hear from you. Drive safe.

Hugo
12/11/2008