HMRC agrees holiday payout with contractor in landmark employment case

28 September 2018

HMRC and a number of intermediary companies have agreed to settle a claim for more than £4,000 in holiday pay to Susan Winchester, who spent more than a year working on marketing projects for the Revenue as a freelancer. She achieved the settlement after challenging HMRC on its application of employment law after the terms of her contract with the government body were changed. Ms Winchester's case is believed to be the first pursued by someone working for HMRC since the April 2017 rule change.

The landmark action, which was funded and backed by The Association of Independent Professionals and the Self-Employed (IPSE), directly challenges public sector hiring practices put in place following changes to the off-payroll rules in 2017.

 

IPSE laid out the case as follows:

Earlier this year, marketing and business development consultant, Susan Winchester, launched a claim in the Central London Employment Tribunal against HMRC, the agency Kinect Recruitment Ltd and three other parties in the contractual chain. It was for £4,200 in unpaid holiday pay under the Agency Workers Regulations.

Ms Winchester’s company, SJW Marketing Solutions Ltd, was originally engaged by HMRC in September 2016 to provide marketing services.

With the changes to off-payroll rules in the public sector about to come into force, HMRC ran the engagement through the controversial Check Employment Status for Tax (CEST) tool and determined that IR35 applied.

HMRC then required Ms Winchester to go onto an agency payroll, a decision that could not be challenged.

Ms Winchester claimed that as she was then effectively an agency worker under the regulations, she was therefore entitled to a clear, transparent amount of holiday pay and to the same holiday entitlement as employees of HMRC.

On the morning the tribunal was due to start, the parties agreed to settle the case for the full amount being claimed.

 

IPSE CEO Chris Bryce said the case exposed the fundamental unfairness of the IR35 changes brought in last year.

“When HMRC forced Susan onto an agency payroll, with no opportunity to appeal, they thought they could wash their hands clean of any repercussions. Susan’s case sends a very clear message to clients, that if you are going to treat contractors like workers, then you’ve got to give them worker entitlements.

You can’t just decide someone is inside IR35, shunt them onto an agency payroll and expect someone further down the line to pick up the tab for your obligations like holiday pay. 

This is further proof that the IR35 changes have sown chaos and confusion since they were introduced in the public sector last year. What’s even more extraordinary is that one of the culprits here is HMRC. If HMRC don’t understand their obligations under a system they’ve created, how can they expect businesses to get it right?

Therefore, with Brexit hanging over the country, IPSE’s response to the Government’s consultation on extending the changes to the private sector is clear: abandon this disastrous proposal. We appeal to the Government to harness the talent provided by the freelance community and stop hounding them!”

 

CIPP comment

This case adds yet another sound reason to delay any changes to the existing off-payroll working rules for engagements in the private sector. Further in-depth consultation is required to ensure that the changes that came in for the public sector last year are working efficiently and accurately before any further consideration is given to rolling out the reforms to the private sector.

As we said in our response to the government consultation in August, our findings confirm that whilst the CEST tool is largely seen to be an improvement on its predecessor, before further reform is considered, thorough user evidence research together with a review of how CEST operates, should be carried out to increase the number of reliable determinations to a satisfactory level.