The following Employment Tax guidance note Produced by Tolley and written by Anne Redston. Anne is a barrister at Temple Tax Chambers and is not authorised to write on behalf of the Tribunals Service or the judiciary. provides comprehensive and up to date tax information covering:
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 consider 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.
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.
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?
If an individual is running his own business and can demonstrate that he has business premises 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 all the trappings of a business, he can still be self-employed. In other words, this is a one-way test: if a person passes the test, he is self-employed; if he does not, the other status tests must be considered. The main ones are set out below.
Note that many of those working in construction and the ‘knowledge-based
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