14 Dec Is your Self-Employed Coach REALLY self-employed?
HMRC is actively checking the status of self-employed coaches and workers in sport to verify if they are really self-employed or are actually employees. Clubs and coaches paying other coaches should therefore verify the status of their workers without delay in order to avoid a potentially hefty tax bill.
It is a common misconception in sport that the person paying the worker (the client) can just declare the worker to be self-employed – whether they ACTUALLY are or not will depend on the way they actually work with the person and on the documentation in place. It is common to get a situation on sport where the worker is a registered self-employed worker and there is a contract in place to state this, yet the worker is declared a employee by HMRC because of the actual way the client and worker work together.
If HMRC decide that a worker is not self-employed, the client may be liable for unpaid employers’ national insurance going back as far as six years, plus penalties and interest. A recent example was a sports club that had their ‘self-employed’ coaches declared employees and were issued with a tax bill of over £30,000, money the club does not have and therefore the committee will be personally liable for.
So how do you verify that your self-employed workers really are self-employed?
USE THE ESI SOFTWARE
HMRC have an essential software tool on their website called the EMPLOYMENT STATUS INDICATOR that will evaluate the actual way you work with your worker(s) and will then inform you as to whether the relationship qualifies as self-employment or whether your person is actually an employee.
You should be aware that the software is written on the assumption that the worker is a builder or plumber, the trades HMRC assume will be self-employed, so you will sometimes need to interpret the wording used. For example, it may ask if your worker supplies their own ‘tools of the trade’ – for a coach, this would be portable equipment required to carry out the coaching.
The software will ask you a series of questions on how you work with the worker. Once completed, it will then give you one of three answers – SELF-EMPLOYED, EMPLOYED or CANNOT BE DETERMINED.
If the software states that YOUR WORKER IS SELF-EMPLOYED – good news! You will need to print off the results page and the enquiry details page as your proof that you have completed the check – HMRC are then legally bound by the results of the software which means you won’t have problems as and when HMRC come calling.
Please note that it is only legally binding if you have been honest, have the necessary documentation in place, i.e. a contract detailing your working arrangement with the worker, and if the checking was undertaken by the client (not the worker). Many clubs fail to put a robust contract in place with the necessary terms and conditions, resulting in issues with status.
If the software states that YOUR WORKER IS AN EMPLOYEE or the STATUS CANNOT BE DETERMINED, you will need to either change the way in which you work with the person or you will need to declare the person an employee and process payments to them through a payroll service. It is important that you take action to resolve the issue without delay – don’t ignore it!
GET A CONTRACT
A robust contract is vital in order to confirm the status of a self-employed worker. The contract will detail how the relationship between client and worker passes the self-employment guidelines, as detailed in your answers given when using the ESI tool.
Many of the national governing bodies provide template self-employment contracts for their affiliated clubs and coaches to use and there is normally no charge for these. You should ensure that any such contract has specific provision for the self-employment guidelines and you should also get such a contract checked by an industry expert to ensure it complies with said guidelines.
If you are struggling to source a robust contract or want one that is ‘ready to go’, we provide a template contract which has full provision for the guidelines. Such a contract would cost over £300 from a solicitor – our template is just £55 and includes a detailed appendix on how to complete the Employment Status Indicator and match it to the clauses in the contract.
It is important to note that you should not under any circumstances put in place a contract that does not reflect the actual working arrangements – the consequences of tax fraud are significant if HMRC can prove you did this deliberately.
We cover this subject and more on our BUSINESS ESSENTIALS workshop, on which we outline the ways in which a client and worker in sport can pass the guidelines and what paperwork is needed to prove compliance.