Establishing employment status

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:

Establishing employment status
The contract
What are the consequences of Autoclenz?
Check employment status for tax (CEST)
Recategorisation by HMRC
HMRC determination
Challenging recategorisation
NICs deeming rules

This note explains how to work out whether a person is employed or self-employed. It considers the NIC deeming rules, the contractual relationship between the parties, the Employment Status Indicator (ESI) and the HMRC status determinations together with how these can be challenged. The reasons why status is important is explained in the Employment status ― why it matters guidance note.

Remember that this note, and the other notes on employment status, are only a summary and you may need to take further advice. For the position where individuals are working through personal service companies, see the Personal service companies overview guidance note.

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.

Please note that all case references in this guidance note are subscription sensitive.

The contract

The NIC deeming rules apart, the starting point when establishing employment status is the agreement (contract) between the individual and his engager.

Sometimes the contract will be written, sometimes oral, and sometimes part-oral, part-written. It is naturally more difficult to establish the terms of an oral contract and it is therefore advised that individuals formalise their relationship with their engagers in writing. Of course, the contract will be effective for all purposes and not just for tax and National Insurance, so employment law advice should also be taken.

The status tests and the underlying case law are of primary importance. These are summarised in the Employment status tests guidance note. In particular, care is needed when defining the extent of any control over the individual by the engager, whether there is a right of substitution, the evidencing of any financial risk or opportunity for profit, and which party is to supply equipment, tools and transport.

For more information on employment contracts, see