Employment status has always been, and will no doubt continue to be, a contentious issue for HMRC. Whether an individual is employed or self-employed is not a matter of choice and employers and contractors must ensure that they are engaging workers under the correct contract. An employee will have a contract of services, whereas a sub-contractor will have a contract for services. It is vital to classify your workers correctly as, along with other factors, this will determine the tax and national insurance treatment which they are subject to. For example, employees can attract an employer’s national insurance liability, whereas a self-employed person will not. HMRC can carry out a status enquiry if there is any doubt surrounding the status of workers and demand reimbursement where they find an incorrect contract is in place.
In order to determine the ‘reality’ of an individual’s status, HMRC have set out certain criteria which can enable a decision. For example, do workers provide their own equipment, can they decide their own working hours, can they send a substitute in their place and do they bear the financial risk. Other considerations include: entitlement to statutory payments, length of engagement and the existence of a mutuality of obligations. This is not an exhaustive list however and the rules can differ across industries. If ever there is any doubt on the status of your worker, advice must be sought.