PART 2: TAX
employment status when the current tests are designed to test for PAYE liability instead. The advantage for an employer of using the services of a self-employed person is obvious. However, avoidance of both secondary (employer’s) Class 1 National Insurance Contributions and the removal of the need to undertake administration of PAYE at source can be attractive as well. There are seven key issues that must be addressed when considering the relationship that exists between the parties: • the existence of a formal contract - for a person to be employed a contract of service must exist; this may be written, oral or implied • self-employment requires a contract for services. Where the true relationship is one of master and servant the contract is clearly one of service see Massey v Crown Life Insurance Company at https://www.gov.uk/hmrc-internal-manuals/employment-status-manual • COPYRIGHT © 2021 THE CHARTERED INSTITUTE OF PAYROLL PROFESSIONALS exclusivity - the self-employed are not restricted to providing services to a single engager. They should be able not only to perform the tasks required but be able to appoint a substitute • mutual obligation - an employer is obliged to provide work for an employee and the employee is required to undertake such work but no such obligation will exist in a contract for services except that specified in a schedule of work • control - determination of where and by whom work is done is one of the key issues in determining the status of self-employment. An employer has the power to select employees, to pay remuneration, to control the method and time of work and has the right of dismissal • financial risk - an individual truly self-employed must be clearly seen to be taking the financial risk. The following questions are relevant - Does the individual provide or own his or her own equipment? Does the individual stand to suffer losses as well as profit, dependent upon his or her performance? • method of payment - the self-employed will normally receive a fixed sum for performing a specific task. They may also be subject to penalties in the event of full or partial failure to complete work to time or to standard. Provision of hours of work, rates of pay, place of work, will almost certainly indicate that a status of employment exists. Should any doubt exist, advice should be sought from HMRC (in writing). During 2005 HMRC launched an internet based Employment Status Indicator (ESI) tool to assist employers in making correct status decisions. The focus on status increased significantly with the advent of the new CIS scheme in April 2007 and the need to make a declaration on each CIS300 monthly return that the status of all subcontractors included on the return has been checked. No printing, copying or reproduction permitted. For guidance on status see https://www.gov.uk/employment-status . Ever since the requirement to identify workers for auto-enrolment in October 2012 the need to accurately determine the true status of a worker has become more important. A worker for the purposes of automatic enrolment has a much wider definition than that applicable to an employee. For more information see PART1, Off-payroll Working. IR35 - (Personal Service Company Legislation) IR35 is the number of a press release issued by HMRC that introduced new legislation which came into effect on 6th April 2000. This outlined the treatment of payments for Income Tax and National Insurance purposes where an individual provides a personal service through an intermediary. In this respect a service company is an intermediary through which a worker provides a service to an employer whilst seeking to retain self-employment status.
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