Tax changes that force contractors to pay the same tax and National Insurance as employees could lead to demands for employee benefits from people who provide a service but are not employed by the company.
The Professional Contractors Group, which represents 10,000 contractors in IT, engineering and the oil and gas industry, told Personnel Today last week that IR35, which the Inland Revenue has already adopted under the Finance Act 2000, could lead to contractors trying to recoup their losses by claiming benefits such as sickness and holiday pay.
“This is certainly the way it has gone in the US, with contractors arguing for share options, for example,” said PCG spokeswoman Susie Hughes. “It stands to reason that if they are treated as employees for tax purposes they will be looking to get the benefits too.”
IR35 was introduced by the Inland Revenue to try to crack down on people gaining tax benefits by working through their own companies, known as personal service companies.
It believes that many individuals setting up these companies are benefiting unfairly as, in practice, they are no different from employees.
IT contractor James Collins, managing director of Future Star Services, said HR should ensure contracts spell out the nature of the relationship and make clear the contractor is not an employee.
He said this will prevent contractors claiming employee benefits and also help the contractor convince Inland Revenue that they are not an employee disguised as a contractor.
But David Marshland, employment law consultant at William M Mercer, said companies should simply refuse demands from contractors for employee rights.
He said it is down to the contractor’s company, not the client, to provide them.
“If you have set yourself up as a self-employed person to take advantage of the tax system and those advantages disappear you would not expect the customer to pay extra to compensate,” he said.
By Dominique Hammond