HMRC are planning to use you as a CASH COW!

On 9 October 2009 HMRC published a Consultative Document entitled ‘Lecturers, teachers, instructors or those in a similar capacity’. (Available to download at http://www.hmrc.gov.uk/consultations  click on current, click on Lecturers, Teachers, etc) There are two things about this document:

1. It proposes to bring all Vocational Training – which is practically all training that takes place in Industry, Commerce and Local Government – into the scope of the Categorisation of Earners Regulations 1978.
2. It is one of the most biased, misleading and dishonest documents that have ever been published by any service claiming allegiance to Her Majesty.

If Parliament accepts the proposals, it will have the immediate effect of increasing the cost of the training carried out by freelance trainers throughout industry and commerce by the level of the secondary Class 1 National Insurance contributions – 11%. In addition both the trainers and the organisation that engages them to deliver a course (perhaps just one day per year) will have to maintain a payroll record of the transaction. It will have the immediate effect on the trainers of reducing their fee income by the primary contributions – also 11%.

The objective, as stated in the consultation document, appears to be to ensure that the trainers ‘receive entitlement to the wider range of benefits afforded to employed earners’.

The question is why?

Why at a time when the Government has stated that training is essential to providing a workforce ready to pick up the challenges of the recovery, has HMRC decided to set training back by ten years?

Why when the regulation has been in force since 1978 with freelance trainers working as self-employed  independent businesses throughout industry all that time, and providing a valuable contribution to the economy, has HMRC decided that they should now be brought within the scope of the regulation?

Why does the document state in paragraph 2.4 that employed earners’ contributions provide entitlement to a wider range of benefits when self-employed persons who pay their contributions are entitled to exactly the same range of benefits?

The answer to why is somehow bound up in the recent history (since 2005) of HMRC’s attempts to persuade first aid trainers and training organisations that they fell within the unamended regulation.

Why is the document biased misleading and dishonest?

The Professional bodies of the First Aid Training sector have notified HMRC of the following facts and have suggested that, in the interests of a balanced and unbiased consultation process, the document should be amended. HMRC have not responded or amended the document. This paper therefore sets out to address those issues that the industry feels to be biased. dishonest and misleading.

The Consultation Document has two themes running throughout.

1. The only training sector that has given rise to any problems in the application of this regulation is First Aid. The implication of this being that if it were not for the troublesome first aid sector amendment would not be necessary, and that it would be applied to all vocational training throughout industry, commerce and local government simply and easily!

2. That all trainers delivering vocational training courses should be classed as employed persons for National Insurance purposes and would thus immediately become entitled to the benefits of an employed person (even though all self employed persons are entitled to the same range of benefits!).

On the first theme, HMRC have confirmed that they have no information or knowledge of the application of this regulation in any other sector of industrial or commercial training. Extensive enquiries of training organisations in other sectors have revealed that it is only first aid, and then only the limited number of businesses that have suffered compliance checks that have ever thought they might fall within this regulation. They thought that, because that is what HMRC told them! There is no evidence whatsoever that any other non-educational organisation has ever even thought that they might have to apply the regulation. All the evidence suggests that, outside of Educational Establishments, the only place where HMRC have attempted to apply the regulation is to the First Aid sector. The fact that (to quote the document para 2.12) ‘HMRC’s compliance programme has not indicated a widespread lack of knowledge or application of the regulation by those affected.’ can only be attributed to the fact that elsewhere, the compliance programme has not referred to it at all!

On the second theme, the document details the historical context in which the regulation was originally enacted, but it omits to mention that it was introduced in the seventies to prevent State-controlled Educational Authorities and establishments exploiting part-time and temporary lecturers and teachers. These workers, unable to find full-time permanent posts, were treated as self-employed by the Educational Authorities in order to avoid having to pay not just the National Insurance contribution, but also the Graduated Pension contribution. This was rightly regarded as being grossly unfair by the teaching unions, as indeed it was. The regulation was introduced to stop Educational Authorities exploiting this group of workers and put them on an equal footing to that of their full-time counterparts working in the same Educational Authority. This is why the regulation, and indeed the ruling in the only case that has ever challenged it, referred exclusively to Educational Establishments. It is also why until now, with the exception of the First Aid Training industry, it has never been applied to any organisation or group of trainers working outside of the recognised Educational Establishments.

The document also does not mention that since before the enactment of the original regulation and right through the period it has been in force, there are thousands of freelance trainers who have been confirmed by HMRC as being correctly treated as self-employed, working throughout industry and commerce. It has never until now even been suggested that these workers, who quietly and without fuss carry out a task of immense importance to the economy, should come within the scope of this regulation. They are not alongside other workers doing the same thing on different terms, nor are they carrying out tasks that are broadly analogous to anyone else. If they were, there would be no need for them, and they would cease to exist!

Section 4 of the document contains what HMRC claim to be the practical consequences of the Regulations. Their statements are factually and demonstrably incorrect!

The guidance notes on the regulation were published a full four years after Mr Justice Mumby’s findings in the St John’s College School case. Four years in which, one imagines, HMRC were able to reflect on and ensure that the guidance they issued would fully accord with both the intention of the original legislation and the case findings.

The guidance notes (EMS4503), issued in December 2004 (which fully take account of the St John’s College Case) states in the only paragraph that refers to instruction taking place outside a recognised educational establishment:

‘Where a course is given in places other than a school, college or university the Regulations should be applied only to those teachers who are giving instruction on courses which meet the requirements of regulation 1(2), as shown above, and are not purely recreational or vocational.’

These guidance notes remained as HMRC’s official guidance until April 2009, when, for reasons that have never been explained, without any further rulings that could influence or alter interpretation, the position on vocational training was reversed.

It is therefore quite wrong for HMRC to claim as they do in Paragraph 4.8: 

 ‘Following the outcome of the St John’s College case the Inland Revenue (now HMRC) published guidance concerning the regulations in the Employment Status Manual (ESM). This set out that the regulations were considered to apply to all training and instruction that took place in a recognised school or college whether or not that training or instruction was part of the establishments own curriculum. The guidance was also intended to make clear that this judgement effectively widened the scope of the legislation so that all academic instruction and any instruction leading to a recognised qualification, whether part of an academic or vocational course, would fall within the regulations, even if this did not take place in a recognised educational establishment.’

Paragraph 2.13 states: ‘During discussion with the First Aid Training sector about the regulations, HMRC has been told that due to the wide range of courses in the sector, and the diverse circumstances under which first aid training is delivered, it has become progressively more difficult to apply the regulations in a way that the sector believes is consistent and in keeping with what the regulations were intended to achieve.’ – This is also untrue! There are only three courses that HMRC status inspectors have ever discussed in any detail with members of the first aid  training sector, these courses vary slightly each time because each course is tailored to meet the requirements and address the risks of the particular client business to whom it is delivered, but the wording of the regulation itself makes it clear that any course run in an educational establishment that has a broadly similar content to a certificated course run in the same establishment, would fall within it. So where have the difficulties come from that HMRC now say have led to the need to amend the regulation because of the first aid training sector’s inability to apply it?

The attacks on first aid training businesses began in 2005. The claim made by HMRC Status Inspectors was broadly that a training organisation constituted an educational establishment and thus fell within the scope of the regulation. A number of businesses capitulated to their demands because they foresaw that the professional fees they would incur and the time and energy spent on fighting would be immense. HMRC have been taking money off these businesses and the trainers that deliver courses for them, ever since.

A number of businesses resisted, and for those businesses it has been a long war of attrition. Of those businesses only one has ever been able to obtain a listing for a hearing in front of the Commissioners, and that because they applied for the listing themselves. HMRC allowed preparations for that hearing to go ahead until six days before it was due to be heard, then they suddenly withdrew from the proceedings and dropped their claim against the appellant. They have since admitted that the grounds on which they withdrew – that of a procedural anomaly – were incorrect and a mistake by the officers concerned. Evidence obtained under the freedom of information act has revealed that two of the officers most closely involved in making that mistake were senior executives in the Employment Status Policy Unit.

The central defence by the appellant to the case was that First Aid Training as delivered in the industrial and commercial settings in which they work was purely vocational.

We believe that all readers of this article (and the evidence for the foregoing is freely available on request), will be able to make up their own minds on the truth of the statements within the consultation document and the integrity with which it has been presented. What is now important is to try to answer the original question of why?

Firstly, we have already established that both class 1 benefits and class 2 benefits actually give exactly the same entitlement. So the claim that the amendment is necessary in order to ensure that the poor exploited trainers receive the benefits of an employed earner is completely false as any competent employee in Her Majesty’s Revenue and Customs would know.

Secondly a regulation is not a revenue raising instrument, it is an instrument by which the nation is made fairer or safer, so, the many millions additional revenue that the exchequer would receive because all trainers would have to pay Class 1 contributions and all the businesses that engaged them would be required to pay the secondary contributions, is entirely incidental and obviously cannot be seen as a motive.

So, what motive is there left? We can only hypothesise that it is purely and simply to protect those members of HMRC who have been most closely involved in the attack of first aid training that has taken place since 2005. The training that the sector delivers has made the nation’s workplaces better and safer places to work in. The activities of HMRC employment status department have done great and real damage to the whole sector, not just the individual companies that have been specifically targeted. It has now been proved without a shadow of doubt that HMRC had no mandate to charge first aid training under this regulation all the time that their guidance specifically excluded vocational courses. They have proved it themselves firstly by changing the wording of the guidance notes to specifically include instead of exclude it, and secondly by admitting that the regulation requires amendment for them to achieve their policy objective. It would appear that they hoped to achieve all this before the businesses and the trainers that have been penalised for up to five years called foul!

If you or your organisation has been paying Class 1 National Insurance Contributions on what are otherwise, self-employed trainers carrying out vocational (work-related) training, then we would suggest you should immediately contact your HMRC Status Officer, give them the facts above and request a refund of the contributions. If you would also contact the writer of this article on [email protected] it would be appreciated, as we are anxious to build a body of evidence on this matter, and we may be able to help you!

Please, please all trainers, training organisations and organisations that train read the proposals under section 7, remember that by removing the concept of educational establishment from the regulation as is proposed, every organisation in this country will have to apply the regulation to every self-employed trainer that it engages, and that neither you or the trainer will gain anything whatsoever. But you will have to pay National Insurance contributions as though he or she were an employed person.

Follow the instructions given in the document to respond.

Please also send a copy of your response to your Member of Parliament as he or she will ultimately be responsible for either allowing or quashing the amendments.

It is now your responsibility!

Terry Welti