Working out whether you are an employee or self-employed can be tricky and HMRC’s view can sometimes be at odds with status defined under employment law.
Clearly, although not always, there are tax and NIC advantages for you and the business that contracts for your services if you are treated as self-employed as opposed to employed. However, you may have more rights – holiday pay for example – if you are employed rather than self-employed.
HMRC’s guidance states that you are probably self-employed and shouldn’t be paid through PAYE if most of the following are true:
- you are in business for yourself, are responsible for the success or failure of your business and can make a loss or a profit
- you can decide what work you do and when, where or how to do it
- you can hire someone else to do the work
- you are responsible for fixing any unsatisfactory work in your own time
- the person contracting for your services has agreed a fixed price for work to be done – it doesn’t depend on how long the job takes to finish
- you use your own money to buy business assets, cover running costs, and provide tools and equipment for your work
- you can work for more than one client
It is also important to consider if the intermediaries legislation known as IR35 applies to a particular engagement and whether you should pay tax through PAYE. There are special rules that came into effect earlier this year for individuals providing services to the public sector via an intermediary. The new rules shift the responsibility for deciding whether the IR35 legislation applies from the intermediary to the public sector department receiving the service.
HMRC offers an online employment status tax tool that can be used by workers, employment agencies and those seeking to hire a worker. HMRC will allow users to rely on the results of the test provided there are no contrived arrangements or searches designed to get a particular outcome from the service. The service is anonymous and results will not be stored online. However, the results can be printed and held for your own records.
This area of tax law is a classic grey area and if you are at all unsure of your tax position, either as a supplier or purchaser of services, we would recommend speaking to us about your arrangements.