Find out how HMRC rules apply to the security guards you deploy

You need to know their employment status

Part of the amount of tax and national insurance you have to pay to HM Revenue and Customs (HMRC) depends on the “employment status” of the officers you deploy, i.e. whether they are employed or self-employed.

You must verify their employment status in the following two cases:

  • labor law – to see if they have the rights of an employee
  • tax law – to see if you are responsible for PAYE contributions and National Insurance

You and they may have to pay unpaid taxes and penalties if their employment status is wrong.

Use advice provided by HMRC

HMRC provides advice and tools to help you determine if someone is employed or self-employed.

You should:

Or you can contact HMRC directly.

Think about the contract

You need to determine if the contract you have with the agents you deploy is a service contract (employment) or a service contract (self-employment).

Contracts can be written, oral, implied or a combination of the 3. This means that the contract may not be defined in a single document. It may include:

  • any instructions, manuals or other documents that form part of their working relationship with you
  • what you say or do and what they say or do
  • what happens in practice

Determine the employment status of your agents

You can use “employment status indicators” from case law to determine a person’s employment status.

Some of these indicators are:

  • mutuality of obligation
  • personal service
  • control
  • financial risk
  • own-account business

We explain each of them below. The ESM0500 – Guidance for determining status section of the HMRC Employment Status Handbook provides further details.

Mutuality of obligation

The “mutuality of obligation” establishes whether a contract exists. A contract exists when a worker accepts your job offer and you pay for the services provided by the worker.

This can be present in both salaried and self-employed engagements and does not determine the nature of the contract between you.

Personal service

An employee must provide a “personal service”, that is, they must perform at least some of the work themselves. Related to personal service is whether a worker has a truly unlimited right to provide a substitute.

A true unlimited substitution right can nullify an employment relationship. This will only be the case if the substitution clause is wide enough to allow, without breach of contract, the worker to decide never to report personally to work. The worker would be responsible for finding and paying another worker to provide the services, which neither you nor the end customer can veto.

If you or the end customer are able to restrict a worker’s ability to provide a substitute, or can veto it, then such restricted right to substitute would not prevent the worker from providing a personal service.

Control

You must have sufficient right of control over the agents you deploy for an employment contract to exist.

There are 4 control elements to consider. This includes controlling what, where, when and how work is done. You do not need all 4 elements to be present to have sufficient right of control.

It is the right to exercise control that counts, not whether or not that right is exercised.

Financial risk

A strong indication of self-employment is whether the worker is at financial risk doing the work for you. “Financial risk” means risking one’s own money by buying assets and paying for running costs, overhead and materials.

“Financial risk” in this context does not include things like:

  • travel expenses to/from their place of work
  • pay for own clothes
  • use of their own small equipment, such as a phone, torch, or pen

Indeed, these things are common to salaried and self-employed workers.

Self-employed company

A person is likely self-employed if they are responsible for:

  • invest in capital
  • manage overhead, salaries and debts
  • make a profit or loss

Other factors

The presence or absence of rights or benefits is not a significant factor in determining whether a person is employed or self-employed, nor is the intention of either party. To determine whether an operator is employed or self-employed, you need to establish all the facts and then make an informed decision by looking at the bigger picture.

An employment intermediary is a person or a company that makes someone work for a third party. They are also often known as an “agency” or an “employment firm”.

You are an employment intermediary if you supply workers to work for a client or another employment intermediary, and the client then remunerates you or a person related to you for the services of the worker. The client is for whom the worker does the work.

If you are an employment intermediary, there are special “agency” rules that apply if the workers are not already employees.

Agency rules will apply when:

Where agency legislation applies, the worker is considered to be employed with you and you are responsible for administering the PAYE/NI.

Agency law does not apply to you if you can provide clear and unequivocal evidence that no one has the right to supervise, direct or control the way the operator provides its services (see ESM2037 in particular), or show that workers are already engaged as employees with PAYE/NI being fully considered.

Find out more about the agency’s legislation

You cannot use HMRC’s Check Employment Status for Tax (CEST) tool to decide whether the agency’s rules apply.

Labor supplied to you by a third party

If agency legislation applies and you are using third party labor, then the security company contracting directly with the client is responsible for the PAYE/NI operation, unless it is not already counted downstream in the chain. Please see ESM2039 for more information.

It is important that you do your due diligence if you receive labor from a third party and contract with customers to supply workers. If agency legislation applies, you may need to report it or ensure it is taken into account throughout the chain. Your due diligence checks should cover this.

It is important that you think about how to protect your business against financial and reputational risks.

Read HMRC’s advice on due diligence.

If you are an SIA approved contractor

Indicator 4.2.1 of the ACS self-assessment workbook requires that a licensed contractor “comply with all tax and national insurance legislation applicable to the people they deploy”. It also says that “all members of the organization must be employees unless the organization can prove otherwise.”

This means you must:

  • know the employment status of your employees, i.e. whether they are salaried or self-employed
  • find out if the agency law applies to anyone you have determined is not an employee

Your appraiser will ask you to see proof of this. If you cannot provide this evidence, or if the evidence is inconclusive, then it will raise a need for improvement.

There are 4 ways to show that you meet the requirements of Indicator 4.2.1. You can:

  • provide evidence that shows your agents are employees or are treated as employees under agency law with the appropriate PAYE/NI deducted
  • demonstrate that you have set roles that HMRC has confirmed to be correct
  • provide documented results from HMRC’s ‘Check Employment Status for Tax’ (CEST) tool
  • prove that you are complying with a recent court order

We explain each of them in more detail below.

Evidence showing the employment status of the agents you deploy

The supporting documents you provide must:

  • demonstrate the correct employment status of your agents
  • demonstrate that you are making the correct PAYE/NI contributions

Here are some examples of evidence you can provide:

  • the names of all agents you deploy
  • operator roles and responsibilities
  • contracts with customers, suppliers and individuals
  • assignment instructions
  • training and integration files
  • bills
  • Timesheets
  • routes
  • pay sheets
  • Real-Time PAYE Information (RTI)
  • expense reimbursements
  • vacation statements and payments
  • reports of employment intermediaries

We may interview your staff, customers and suppliers to confirm that the employment status you have declared is true and accurate.

Defined roles

You have defined roles (such as ’employee’ or ‘self-employed’) and HMRC has confirmed in writing that the employment status identified in those roles is correct.

You should review these defined roles annually to confirm that:

  • roles or contract terms have not changed
  • relevant legislation and/or HMRC guidance has not changed

HMRC correspondence will cease to be valid if any of the following apply:

  • there are changes to HMRC’s role, contract, legislation or guidance
  • the correspondence is more than 12 months old, except in exceptional circumstances and at the discretion of HMRC

Documented results of the CEST tool

The answers you give to the CEST tool must be true and accurate. Neither we nor HMRC will accept results obtained through artificial arrangements designed to achieve a particular result from the tool. We would consider this as evidence of willful non-compliance, which would result in penalties.

If the role, contract, legislation or HMRC guidelines change, you should use the CEST tool again to check if you get the same result.

You cannot use HMRC’s Check Employment Status for Tax (CEST) tool to decide whether the agency’s rules apply.

Court or tribunal decisions

When a court or tribunal issues a decision on someone’s employment status, you can provide evidence that you comply with that decision if it is identical to the terms and conditions of the officers you deploy.

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