22 Jun 2012

Slush Puppie Avoid Brain Freeze

0 Comment

In a slightly unusual case both Slush Puppie and HMRC ended up arguing an employment status case at the tax tribunals when neither party really wanted to.

The Facts

The case was a result of a disgruntled self-employed worker writing to HMRC saying that he was in fact an employee of Slush Puppie and therefore entitled to a tax refund as Slush Puppie should have been accounting for his tax, not him.

HMRC interviewed the individual (Mr Sandford) and initially agreed that he was an employee and that Slush Puppie were liable. This was strongly contested by Slush Puppie and HMRC eventually agreed to back down and not disturb the issue. Mr Sandford would not accept HMRC’s new position and HMRC reluctantly reopened their enquiry and accepted that the matter would have to be resolved independently at the tax tribunals.

After examining the facts it was clear to the tribunal that Slush Puppie were correct to treat Mr Sanford as self-employed and that this case was essentially brought about because his tax agents advised him that this was an area of law well known for its openness to argument and he may be able to get a substantial rebate at Slush Puppies expense.

Points worth considering

Normally when an individual makes an employment claim they will claim for things like holiday pay, unfair & wrongful dismissal, redundancy etc. These will all be matters for the employment tribunals to consider. This case was different however as Slushy Puppie ended up with a HMRC enquiry and status dispute at the tax tribunals because of the individuals actions.

In a normal HMRC employment status dispute it becomes significantly harder to successfully argue your case if one of the individuals claims they were an employee. Slush Puppie were very lucky that the relationship was so clearly one of self-employment, many other businesses would struggle to win their case when the individual is gunning for you as well as HMRC.

Another important aspect of this case is that although HMRC eventually agreed with Slush Puppie and closed their enquiry, it did not protect them whatsoever as the enquiry was simply reopened (just because the individual insisted) and a 5 year dispute followed!

Perhaps the most concerning part of this case for anyone that engages self-employed people is that you could have an individual claim all the usual employment rights highlighted above and virtually bleed your business dry and then to rub salt in the wound, they could go to HMRC and request a tax rebate meaning HMRC then go after you for all tax and national insurance (including employer’s national insurance) – this would be a massive payout for any greedy subcontractor and would most likely destroy even the most healthy of businesses.