Most businesses have employees, and most have other people who work for them but are not treated as employees. The distinction between an employee and a self-employed person is often obvious, but there can be problems in borderline cases. HMRC are stepping up their programme of “Status Reviews”. A Status Review involves looking at the contractual relationship between the person doing the work and the person paying for it, to determine whether an employment exists. The consequences can be serious if you have been treating someone as self-employed and the Status Review determines he is in fact an employee. HMRC will expect the employer to pay the income tax and National Insurance Contributions that should have been deducted under the PAYE system, together with the Employer’s NIC contributions. In many cases, neither the worker nor the person paying him want to have an employer/employee relationship – indeed, in many cases I have seen, it would be impossible for the business to get the work done if it had to be done by employees. In these circumstances, it is important to ensure that the way the agreement is structured will survive a Status Review, and what follows are some basic pointers to the things to consider: The Difference Between Employment and Self-Employment Like so much in tax, the basic proposition looks deceptively simple:
- An employee is hired under a “contract of service” (better known as an employment contract)
- A self-employed person agrees a “contract for services” with you – he is in business on his own account, with the risks and rewards that implies
- Brendan needed the landlord’s agreement for Joe to take his place
- The contract that night was between the landlord and Joe, not between Brendan and Joe
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