Employment status for tax purposes: essentials for employment lawyers
Employment status for tax purposes: essentials for employment lawyers

The following Employment guidance note provides comprehensive and up to date legal information covering:

  • Employment status for tax purposes: essentials for employment lawyers
  • Employment status for tax purposes: why it matters
  • Establishing employment status for tax purposes
  • Employment status tests for tax purposes
  • HMRC's employment status service (ESS)
  • Recategorisation by HMRC
  • Proposals for change: the Taylor Review, the 2018 Employment Status Consultation and the Good Work Plan

It is important to appreciate that, although HM Revenue and Customs (HMRC) takes a similar approach to the employment tribunals in determining employment status, they may well reach different conclusions on the same facts. An individual regarded as an employee for tax purposes will not necessarily be regarded as an employee for the purposes of employment legislation, such as unfair dismissal or redundancy. It is also important to appreciate that HMRC recognise only two employment statuses for tax purposes: employment and self-employment. There is no ‘worker’ category.

From an individual’s perspective, employment status matters because it determines the income tax and national insurance contributions (NICs) on their earnings, as well as their statutory employment rights. From the engager’s perspective, miscategorisation may trigger Pay As You Earn (PAYE) and NICs assessments as well as claims for employment rights or statutory payments. Getting employment status wrong can be very expensive.

NB: This Practice Note gives only an general overview (aimed at employment lawyers) of the main principles of the relevant legislation and HMRC guidance. It is not intended as comprehensive or definitive guidance on that legislation and further specialist tax advice should always be sought.

Employment status for tax purposes: why it matters

For further detailed information on the relevance of employment status for tax purposes, see Practice Note: Employment status—why it matters.

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