Beware hidden tax when using self-employed workers
Dairy farmers run the risk of losing valuable tax reliefs when they engage self-employed herdsmen, according to rural accountant Old Mill.
Many producers use self-employed contractors for milking or other services, as it can be cheaper than employing full-time or part-time staff. However, by doing so, they could lose agricultural tax relief on any properties occupied by the contractors, as well as leaving themselves open to paying National Insurance and Income Tax arrears.
“Very often a herdsman who considers himself to be self-employed is actually employed in the eyes of the law,” says Mike Butler, Partner at Old Mill Rural Services. “An individual’s view of employment status is irrelevant – it is a point of fact to be decided by the correct legal interpretation of the facts of the case. And, if a self-employed contractor is in reality found to have been employed, and walks away without paying the duty they owe, the employer will be liable to pay that missing tax and National Insurance.”
Points to consider include whether the contractor shares some of the financial risks associated with the work, what proportion of income they derive from a single client, and whether they personally have to carry out the tasks, or can engage a sub-contractor, for example.
But it is not just Income Tax and National Insurance that the farmer could be liable for. If the contractor is truly self-employed, it has significant implications for relief from Inheritance Tax and Capital Gains Tax. “A farmer who provides a self-employed contractor with a farm cottage to live in could find that the dwelling no longer qualifies for Agricultural Property Relief from Inheritance Tax. Equally, the property could lose its status as a business asset for Entrepreneur’s Relief or Rollover Relief for Capital Gains Tax purposes,” says Mr Butler.
“In those cases the farmer may well end up paying £10,000s in tax, merely to have the comfort of a slightly cheaper self-employed herdsman. Cutting corners is the worst possible option when it comes to tax planning. It is important to get a full and thorough review of your circumstances to ensure that tax liabilities are kept to a minimum.”