Paye or Self Employed

Whether you are a Vet or a Nurse, before you work on a Locum basis, you will need to establish whether or not you should be registered as Self-Employed.

The Inland Revenue and Tax Office are finding it increasingly difficult to collect what is duly owed to them by Vets and Nurses claiming to be working on a Self-Employed basis. This results in these departments forcing the Practice that employed the services of that Vet or Nurse to do so instead.

Judges now recognise three key ingredients of employment, which they have come to refer to as ‘the irreducible minimum of employment’. If these three ingredients are all present, the arrangement is one of employment. The absence of any one of them means that the worker is not employed. In law, it is not required to prove that a worker is self-employed. It only need be proved that he is not employed. That is what has to be done and all that has to be done.

The Inland Revenue publishes a list of questions that should be asked, the answers to which, if positive, indicate that the worker is probably self-employed. It also now has, on its website, what is called the ESI, or Employment Status Indicator, which serves a similar function. The list of published questions is quite short and contains only two of the three indicators recognised by Case Law necessary to determine status. It is precisely as reliable as their local office guidance and will almost certainly lead to a decision based on inadequate understanding. So what are the key factors of employment presented to us by Case Law?

a.) Personal Service

If the work can be done one named person only, the situation is one of employment. If it can be done by any suitably qualified person, then it is not employment. This normally translates as the Right of Substitution, that is, the entitlement of the self-employed worker to put in a replacement in his absence. This can be easily achieved, as follows:

• the practice’s usual veterinary agency (which will presumably be aware of the practice’s needs) can be used. Alternatively the locum or the practice vet may suggest a surgeon who is already known.
• the current vet in situ can consider the qualifications and suitability of the replacement with the practice vet present, who can ensure that the replacement will properly meet the needs of the practice. the existing locum then engages the replacement to carry out the work in his absence, and pays him for that work, while he himself invoices the practice as normal.

In reality, the right is rarely required, given that the whole concept is about substituting a ‘locum’, who is by definition himself a substitute. So, when the Revenue asks the question, “Can the locum provide a substitute?” it can be a quite misleading question and is often answered incorrectly.

b) Control / Right of Control

The second critical hallmark is ‘control’. The free-lance worker works under his own control and not under the control of the practice. This does not mean that he cannot be fitted into a rota, or told what jobs need to be done, nor does it mean that he does not have to follow practice policy (e.g. types of pharmaceutical supplies or suppliers). It refers primarily to the manner and method by which the self-employed worker actually performs in duties, whether in consults or operations. In these matters he is in charge of himself.

c) Mutuality of Obligations

The third indicator, unmentioned in the ESI, is the fact that neither practice nor worker is under any obligation to the other in respect of work. There is no ‘Mutuality of Obligation’ such as exists in an employment arrangement. The practice is not obliged to offer further work at the end of a period of engagement and the worker is not obliged to accept it. This is underlined, in extremis, by the possibility of termination without notice on either side for any reason. The Inland Revenue plays down this concept, but this is not the view of the courts, which hold it as fundamental. In the case of Carmichael v National Power, where a worker claimed to be employed and not self-employed, Lord Irvine denied his claim, famously stating that the case ‘foundered on the rock of the absence of mutuality’. If you are currently registered as Self-Employed, It is probably best to continue to do so. However, the Inland Revenue (IR) does stipulate that each job you accept is considered on its own merits. Simply because you are Self-Employed in one position, does not mean that you will continue to be Self-Employed. Please consult your local IR Enquiry Centre for more Information. http://www.inlandrevenue.gov.uk/enq/index.htm The Inland Revenue has guidelines that stipulate who can and cannot be Self-Employed. These are set out in document IR56 Employed or Self-Employed (a guide for Tax and National Insurance) which can be obtained by calling the "IR Self Assessment orderline on 0845 900 0404".

It is your responsibility to comply with the rules set out by the IR. If you are not sure, please make sure you ask.

Finally, get professional help from the outset, either from your accountant or an experienced adviser in this area of tax law and practice, as there are bound to be aspects that you have not thought of

For any further advice of Limited Companies, accountancy queries or financial advice contact a recognised accountancy firm, we work alongside a reputable and highly experienced specialist Veterinary accountancy tax firm who are listed on the Accounting and Financial advice page of the site.

Alternatively, contact your local Tax Office or local IR Enquiry Centre. The Inland Revenue has guidelines that stipulate who can and cannot be Self-Employed.