Employment status ― why it matters

By Tolley and written by Anne Redston

The following Employment Tax guidance note by Tolley and written by Anne Redston provides comprehensive and up to date tax information covering:

  • Employment status ― why it matters
  • Gross or net
  • Rates and structure of NIC
  • Expenses
  • Statutory payments
  • Leave for employees
  • Employment law rights and other risks
  • The ‘worker’ category
  • Overall position
  • Conclusion

This note sets out the main differences between employment and self-employment. It discusses the timing of payment, National Insurance contributions (NIC), expenses, statutory payments, leave entitlements and (briefly) employment rights. It does not cover those who work through agencies (for which, see the Agency workers guidance note).

From the individual’s perspective, employment status matters because it determines the tax and NIC on his earnings, as well as his statutory rights. From the engager’s perspective, miscategorisation may trigger PAYE and NIC assessments, as well as claims for employment rights and / or statutory payments. Getting employment status wrong can be very expensive.

This guidance note and the other guidance notes on employment status are only a summary of the applicable law and do not cover all situations.

Remember that this note and the other notes on employment status are only a summary, and do not cover all situations. You may need to take further advice. For the position of those working through personal service companies and the IR35 rules, see the Personal service companies overview guidance note.

The rates and allowances used in this note are those for 2017/18.

In July 2017, the Taylor Review  recommended several significant changes to the current legal position. It is unknown whether any or all of these will be implemented.

Gross or net

The first difference between employment and self-employment is that employees have income tax and NIC deducted from their general earnings before receipt, under PAYE, whereas the self-employed are paid gross.

ITEPA 2003, s 684; SI 2003/2682, reg 21; SI 2001/1004, reg 67

The self-employed pay their tax and Class 4 NIC on 31 January following the end of the tax year and make a payment on account of next year’s earnings at the same time, with a further payment on 31 July following the end of the tax

More on Employment status: