Employment status tests

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 tests
  • In business on your own account
  • Hiring staff
  • Personal service and substitution
  • Equipment
  • Financial risk and opportunity to profit
  • Control
  • Mutuality of obligation
  • Part and parcel
  • Lots of clients ― the Lorimer case
  • The intention of the parties
  • Starting out

Whether a person is employed or self-employed has significant consequences for tax and National Insurance contributions (NIC) purposes. There are also employment law and negligence liability implications. See the Employment status ― why it matters guidance note. Before reading this note, you are advised to see the Establishing employment status guidance note, which also discusses how to challenge an HMRC employment status ruling in the First-tier Tax Tribunal.

Despite the importance of the distinction between employment and self-employment, there is no clear definition of what makes someone employed or self-employed. Instead, there is an extensive collection of court decisions. From this case law, various principles have been established, known as status tests. This note explains the status tests and looks at some of the leading cases. Please note that all cases in this guidance note are subscription sensitive.

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.

Some engagements are classified differently for NIC purposes. These NIC deeming rules override the status tests. For more on the deeming rules, see the Establishing employment status guidance note.

In business on your own account

The simplest way of deciding whether an individual is employed or self-employed is to answer the question: is the person in business on his own account?

Market Investigations Ltd v The Minister of Social Security [1968] 3 All ER 732

If an individual is running his own business and can demonstrate that he has business premises (which can be part of his home) and equipment, that he markets his business, and that he has a client base, he is likely to pass this test.

However, if the individual does not have

More on Employment status: