Introduction to this document

Checklist of employment status factors

If HMRC decides that an individual contractor should have been treated as your employee, it will ask you to pay the tax and NI that should have beendeducted from their pay through PAYE, plus the employers’ NI.  Therefore, it’s important to have documentation on file to show why you treated the worker as self-employed.

Employed or self-employed?

You’re not free to choose the status of individuals who work for you. HMRC aggressively challenges the status of self-employed workers to reclassify them as employees.

Deciding whether a worker is employed or self-employed isn’t easy. And it’s not helped by the fact that neither employment nor self-employment are defined in the legislation. However, there have been many cases concerning employment status and the message from these is that there are several factors to take into consideration. Our Checklist of Employment Status Factors lists the most important. Fill it out as part of your procedure for taking on a new worker. Keep it as evidence to show HMRC the reasons why you treated them as self-employed. Case law shows that it is not necessary to answer “yes” to all of the questions in order to demonstrate self-employed status.

You may only need one really strong indicator of self-employment to put the business into quite a safe position. Failing this, a number of weaker pointers towards self-employment coupled with the absence of any strong points against, should equally put you in a safe position. The main thing to bear in mind if ever faced by a status enquiry from HMRC is that it isn’t the sole arbiter of determining employment status and its view can certainly be challenged.