Employment Tax

Categorisation of earners for NIC purposes

Produced by Tolley in association with Jim Yuill at The Yuill Consultancy
  • 19 Oct 2021 23:17

The following Employment Tax guidance note Produced 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

Categorisation of earners for NIC purposes

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 in place since 2000 have been strengthened in the public sector (from April 2017) and for large and medium client in the private sector (from 6 April 2021) to ensure that tax and NIC liabilities are not avoided. See the Personal service companies ― overview, Off payroll working (IR35) in the public sector ― overview and Implementing off payroll working (IR35) in the private sector guidance notes for details on IR35 and deemed employment for NIC in this case.

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

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