Why does employment status matter?
Well, HMRC needs to know the employment status of your employees for one, and you too should be clear in your own mind whether you are really employed or self employed and if you are an employer whether your arrangements with your staff are accurate and legal.
One of the issues people wrestle with today in areas of employment is are they employed and therefore enjoy all the benefits of an association with an employer in terms of tax, NIC, job and employment legislation protection etc or are they a self employed contractor providing a service where they themselves take responsibility for all their own actions.
Often an employer may want your employment status to be self employed after all he will save money and not be liable. For certain benefits and responsibilities you too might prefer to be self employed.
However even if you both mutually agree that you are self employed and draw up a contract to that effect, HMRC may disagree and there may be a time when you the employee may wish to take their case to a tribunal who will rule based on the actual circumstances regarding the employment relationship even if the contract says something different.
What is my status?
Broadly you are:
- Self-employed if you are in business on your own account and bear the responsibility for the success or failure of that business, and
- Employed if you personally work under the control of someone and do not run the risks of having a business yourself.
How can my employment status be determined?
The questions regarding Tax and National Insurance contributions should help you and the person you work for decide what your correct employment status. Although they are not exhaustive it is not possible to list all the factors which may be relevant or provide a precise guide to their relative importance. If in doubt, consult your accountant or HMRC for more information see www.hmrc.gov.uk.
For each engagement, you will need to look at the whole picture taking account of the written terms and, if necessary, all the facts relating to what happens in practice. Some of these factors will be more important than others, depending on the particular circumstances.
- If you work for a company on a production line in its factory, you are almost certainly an employee. You may also have a written contract of service or you may be a member of a pension scheme open only to employees.
- If you are in business on your own account, you are self-employed. For example, if you run your own shop, or are buying and selling goods, or providing services direct to the public from your own office premises.
Usually it will be easy to decide whether you are an employee or self-employed, but there will be times when it will not be so straight forward. You will need to look at the job as a whole, taking into account all the conditions that you are required to work under. This guide will help you and the person you work for to decide on your status, but it is not possible to cover all scenarios and situations.
Several well known tests are usually applied to determine employment status. If you can answer ‘Yes’ to all of the following questions, you are probably an employee:
• Do you have to do the work yourself?
• Can someone tell you at any time what to do, where to carry out the work or when and how to do it?
• Do you work a set amount of hours?
• Can someone move you from task to task?
• Are you paid by the hour, week, or month?
• Can you get overtime pay or bonus payment?
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If you can answer ‘Yes’ to all of the following questions, it will usually mean you are self-employed:
- Can you hire someone to do the work for you or engage helpers at your own expense?
- Do you risk your own money?
- Do you provide the main items of equipment you need to do your job, not just the small tools many employees provide for themselves?
- Do you agree to do a job for a fixed price regardless of how long the job may take?
- Can you decide what work to do, how and when to do the work and where to provide the services?
- Do you regularly work for a number of different people?
- Do you have to correct unsatisfactory work in your own time and at your own expense?
Casual, or part-time working
The same considerations to determine employment status will apply even if you work part-time or on a casual basis. Unless you can answer ‘Yes’ to the self-employed questions above, you will normally be an employee.
More than one job?
If you have more than one job, or you work for a number of different people for a few days or weeks at a time you will need to answer the questions regarding Tax and National Insurance contributions for each job.
If you provide services to many people and do not work regularly for one person to the exclusion of others, this may affect whether your work for each is as an employee, or as a self-employed person.
Remember, just because you are employed or self-employed in one job, it doesn’t necessarily mean you will be in another job. You could even be an employee and self-employed at the same time. For example, you could:
- be employed as a part-time shop assistant and spend the rest of your time running your own business from home, or
- work full-time in a factory as an employee, and run a part-time business in the evening or weekends
You may have a number of casual or part-time activities, and in some may be an employee and in others self-employed. It all depends on the facts.
For more information re the tax issues please see www.hmrc.gov.uk.
Where to get advice?
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