Categorisation of earners for NIC purposes

By Tolley in association with Jim Yuill at The Yuill Consultancy
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The following Employment Tax guidance note by Tolley in association with Jim Yuill at The Yuill Consultancy provides comprehensive and up to date tax information covering:

  • Categorisation of earners for NIC purposes
  • Employed or self-employed?
  • Illegal contracts for service
  • HMRC challenge

Employed or self-employed?

As is the case with income tax, it is not a matter of choice whether an individual is employed or self-employed for NIC purposes. The categorisation position is determined by examining the facts regarding the relationship between the individual and the person for or to whom the services are provided.

In the vast majority of cases it is obvious whether someone is employed or self-employed. However, there may be cases where the position is unclear or where attempts have been made to artificially create a self-employment, thus avoiding the more expensive Class 1 NIC. The Government has made changes to the legislation whereby an individual will be an employee if there is any element of supervision, direction or control. In addition, the IR35 processes have been strengthened particularly in the public sector to ensure that tax and NIC liabilities are not avoided.

SI 1978/1689, Sch 1, Part I

The general intention is that someone who is an employee for NIC purposes is also an employee for income tax purposes and subject to PAYE. In the same way, someone who is self-employed for income tax purposes should pay Classes 2 and 4 NIC. However, there are certain individuals who have th

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