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The Bogus Bulgarian Self Employed Trap

This subject comes up regularly and ultimately it is not you or me who will make the decision on an employees status but HMRC but if you get it wrong you will end up paying the bill. Employers need to be aware and beware because if something seems to good to be true then it probably is.

We have a plethora of newly formed, thinly capitalised companies £2 is normal that spring up overnight offering to subcontract workers to you that are not economically viable if you share the view that the self employed should achieve earnings in line with the national minimum wage + things like holiday pay and the value of the employment stamp. We have heard of one situation where the all in rate being offered to an employer was <£7 an hour and this equates to something like @£5.50 an hour  depending on the assumptions made. However rate is only part of the argument.

You need also to look at the legality of the worker and the test of self employment and it is no surprise that all these dubious schemes have sprung up around Bulgarians and Romanians who can only work as self employed in the UK until the end of this year and  that may be extended by a further 2 years and it doesn’t matter whether you think it is fair or not those are the rules.

Below appears an extract from HMRC

In order to answer this question (of employment) it is necessary to determine whether the person works under a contract of service (employees) or under a contract for services (self-employed, independent contractor). For tax and NICs purposes, there is no statutory definition of a contract of service or of a contract for services. What the parties call their relationship, or what they consider it to be, is not conclusive. It is the reality of the relationship that matters.

In order to determine the nature of a contract, it is necessary to apply common law principles. The courts have, over the years, laid down some factors and tests that are relevant, which is included in the overview below.

As a general guide as to whether a worker is an employee or self-employed; if the answer is ‘Yes’ to all of the following questions, then the worker is probably an employee:

Do they have to do the work themselves?
Can someone tell them at any time what to do, where to carry out the work or when and how to do it?
Can they work a set amount of hours?
Can someone move them from task to task?
Are they paid by the hour, week, or month?
Can they get overtime pay or bonus payment?
If the answer is ‘Yes’ to all of the following questions, it will usually mean that the worker is self-employed:

Can they hire someone to do the work or engage helpers at their own expense?
Do they risk their own money?
Do they provide the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves?
Do they agree to do a job for a fixed price regardless of how long the job may take?
Can they decide what work to do, how and when to do the work and where to provide the services?
Do they regularly work for a number of different people?
Do they have to correct unsatisfactory work in their own time and at their own expense?

So you need to put your situation to the test on two counts fairness and legality and the guiding principle is if you are unsure take professional advice as the risks are high.

A bunch of West Country farmers were heavily fined recently having been prosecuted by the Gangmaster Licensing Authority and it won’t be the last time as a number continue to “use ” or should it be abuse Bulgarian labour which is unfair on the competition. Guy Bottard of West Country Lawyers Future Law said ” Farming is a long term investment but sometimes through ignorance or greed a small number of Farmers abuse the system. With HMRC having added 2,000 more inspectors, the Agency Worker Regulations being introduced and now the SFO Whistleblowing initiative the writing is on the wall. Farmers had better get it right in the future and advice is only a telephone call away.”

Construction, catering and care are also sectors where we have heard of these practices and the risk are huge

  • The possibility of an HMRC raid
  • Penalties of up to £10,000 per worker. Ignorance of the law is no excuse and HMRC will look through any sham deals and can come after you for unpaid tax and national insurance
  • If you are in a regulated area you might lose your license to operate.

This doesn’t recognise the loss of reputation and possible contracts but still it goes on.

To date regulatory action has been slow much to the annoyance of firms such as ourselves who operate within the regulatory framework and are constantly under cut on price by the competition using dubious tactics.

Whatever you do demand to see full documentation up front and a killing question to ask is “Have you got HMRC approval for this scheme and can I have a copy please?”

Not once has anybody produced a document to support the proposition. If that happens to you then the answer is no. There are plenty of legitimate international, national or local recruitment agencies but just like any other supplier check them out.


Author – Chris Slay

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