The next step

On self-employed status

[Checklist]

On using the Taxman's employment status tool

[Article]

http www hmrc gov uk leaflets es fs1 pdf

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The facts about employment

Taxman’s distinction

Recap. If the Taxman later recategorises self-employed workers as employees, he will ask you for the PAYE and NI you should have deducted from their wages plus the employers’ NI due. This tax bill can cover up to six tax years if the “self-employed workers” have been working for you throughout that time.

News. The Taxman has started publishing a series of new online leaflets. The latest is Factsheet ESF/FS1 - Employed or self-employed for tax and National Insurance contributions (see The next step). It replaces part of leaflet IR56 - Employed or self-employed? A guide to employment status for tax and National Insurance contributions.

Help for employees. It’s supposed to help workers decide whether they are employed or self-employed for tax and NI purposes. This has now been updated to reflect the new construction industry scheme and the online employment status indicator tool, as well as managed service companies. But what about revised guidance for employers? The HMRC website advises that a factsheet for employers will follow; until then you should still refer to leaflet IR56. In the meantime…

Using this to your advantage

Checking employment status. The Taxman is quite right in his leaflet when he says that in most cases, determining employment status will be straightforward. In general terms, a worker is employed if they work for someone and don’t have the risk of running a business. The worker is self-employed if they are in business for themselves and are responsible for the success or failure of that business.

To help an individual check their employment status, the Taxman gets them to answer a series of questions. These are supposedly relevant whether the worker is casual or part-time. If they have more than one job, the questions apply to each.

Tip. Turn the Taxman’s questions (on page two of his new leaflet) around to the employer’s point of view and use them as a checklist to prove the self-employed status of your worker at the beginning of their contract/engagement with you. File this just in case the Taxman comes to call (see The next step for such a checklist).

If it gets complicated. The questions in the Taxman’s new leaflet on employment status should cover most situations. However, if it’s not giving you the result you want, what then?

Tip. Use the Taxman’s online Employment Status Indicator (EIS) tool. This will give you more detailed evidence of your worker’s employment status for the purposes of tax and NI. It’s free, relatively easy to use and on his website. (For a previous article on the EIS see The next step.)

Working through a company. Your worker may choose to provide their services to you through a company (or partnership). If they do, they will need to know whether the Intermediaries Legislation (IR35) applies. However, that is their problem. You still need to have on record your consideration of their employment status. So use our checklist on them as well.

The next step

For a link to the new employment status factsheet (TX 08.19.02A); for a checklist on self-employment (TX 08.19.02B) and for a previous article on using the Taxman’s employment status tool (TX 08.19.02C), visit http://tax.indicator.co.uk.