Zero-rights employees

The rules around self-employed workers in salons have long been open to misinterpretation and abuse, but a new wave of “no-rights employees” is making things increasingly complex and unfair, writes Hellen Ward

I am lucky enough to call Jane Moore (freelance broadcaster, columnist, journalist and author) a close friend. She’s quite a woman and someone I admire greatly for her wit, wisdom, loyalty and friendship.

By the way, note the freelance bit – Jane works all over the media. When she isn’t writing her weekly column for The Sun or working on her next novel, you’ll see her on ITV’s Loose Women, BBC Sunday morning political programmes or reporting for Channel 4’s Dispatches. You may have even caught her on Netflix recently talking about the media’s treatment of the murder of TV presenter Jill Dando.

One thing Jane categorically does not do is work for one paymaster. Yet, like many of her fellow freelancers, HMRC has been “investigating” her for six years now over the muddled IR35 rules and whether some of her work is “outside IR35” (meaning self-employed) or “inside”, meaning that she should be on the payroll of the company using her services even though she doesn’t work for them full time and would receive no employment benefits.

Jane has no issue with her accounts being looked at but, as she recently wrote in her own column, she has been filing her accounts to HMRC without issue for the past 25 years, so why now? Also, that HMRC has taken six years to consider the two contracts in question is an unreasonable and immensely stressful delay.

Some freelancers she knows have felt so hounded that they’ve relented, accepted this bizarre “zero-rights employee” status and paid the resulting tax bill just to get the revenue off their backs. Others, like journalist and broadcaster Kaye Adams, have fought hard for justice. She recently won her third tribunal and HMRC have finally stopped appealing the decisions in her favour, but it has cost her tens of thousands in legal fees and a decade of stress.

Employment status

I talk to Jane a lot about our sector and the issues we have surrounding room and chair rental and “selfemployment”. In our industry, some unscrupulous business owners use disguised employment to avoid employers National Insurance or to stay under the VAT threshold – tax evasion whichever way you look at it.

It seems ironic that the tax man is out to get one sector, while turning a (deliberate?) blind eye to another. It doesn’t make sense. Researching online, I discovered that in April 2017, the Government brought in legislation that created a new class of worker. Sometimes called “inside-IR35 contractors” or “employed for tax purposes”, these workers are, in fact, a new group that has also been termed “no rights employees” (NREs).

According to norightsemployee.uk, “NREs are on the payroll, operate on zero-hours contracts but do not count towards ‘employees’ or headcount. Unlike full-time employees or zero-hours workers, they receive no employment benefits, no holiday or sick pay, no maternity/paternity, and no employment protections or redundancy.”

NREs can effectively be hired or fired at will. In contrast to contractors, they undergo tax deductions directly through payroll, can’t claim expenses exclusive to employees and avoid scrutiny from HMRC or unions. They don’t require status determinations or specific working conditions. Importantly, NREs are approved by Government and HMRC.

As if the area wasn’t clear as mud already, this just makes the water murkier. Contrary to recent advice from an industry body, you simply cannot have (and I quote) “self-employed employees”. Nor can you deliberately choose to stay under the VAT threshold. If you cross it, you are required to charge VAT at current rates (20% at time of print) and pay it over to the treasury. It’s not something you can out-manoeuvre. That’s tax avoidance, I’m afraid.

As Jane said in her Sun column in January: “Since 2021, the onus of IR35 status has shifted to companies rather than individuals, and many are so frightened of repercussions from HMRC that they are insisting people become ‘employed for tax purposes’, otherwise known as zero-rights employees. This tactic has been used to force self-employed lorry drivers, agency nurses, beauticians and IT workers on to the payroll and has contributed a sizeable chunk to Rishi Sunak’s boast last year that there were ‘400,000 new people on the payroll’ while failing to mention they have little to no employment benefits.”

There is no doubt that the way we work is changing. Some people are still in traditional office or salon-based roles and never work from home. Some industry peers are in managerial roles and juggle working from home with coming into the salon or office. A friend I know is in an executive role and struggles with working from home – his company doesn’t even have an office anymore. The value of connecting with people at work should never be underestimated as the tonic it invariably is.

Double standards

When you have such a clear distinction in one sector, with many media celebs working across all genres and therefore freelancing with many companies, how can HMRC possibly argue that they are “employees” to get their tax slice when the people concerned don’t get guaranteed work and all the benefits that come from being on the payroll, like paid holiday or maternity leave, from any one of the companies that use their services? How can this happen when the Inland Revenue seems to happily let hair and beauty professionals come into the same premises day in, day out, and accept their status as self-employed and non-VAT registered?

With the turnover threshold for VAT registration at £85K per annum, that’s takings of only a little over £1,600 per week. No wonder it’s tempting to limit growth and try to stay under the threshold for many people working in our sector, however wrong that is.

As if that wasn’t confusing enough, adding a hybrid option and putting the onus on the companies to check that they are doing things properly when so little is understood about it isn’t fair. IR35 is complicated, and leaving independent businesses in the private sector to interpret the rules means some genuinely self-employed contractors may suffer as a result.

Yet, you can’t help but wonder if IR35 is so confusing that even the people who are legislating it and administering it don’t understand it? The varying tribunal decisions would suggest so. According to a survey by advisory firm Qdos, contractors find IR35 rules “too complex”. The survey of more than 900 contractors found two in five (42.8%) believed they had been subject to blanket IR35 determinations, or placed inside IR35 irrespective of their real employment status.

I agree that all most people want is clarity. To sleep at night, knowing they are doing things properly and that their employment status (whatever it is) is clear and correct for their circumstances. That’s sadly not what is happening at the moment. We need guidance. We need the law to be followed and clear rules laid out. One wonders whether the reason why we aren’t getting it is because the powers that be don’t know themselves?

Hellen Ward is managing director of Richard Ward Hair & Metrospa in London, vice president of The Hair & Beauty Charity and co-founder of Salon Employers Association (SEA).