T he Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) includes guidelines for determining employment status and the tax implications for employees (or deemed employees) and engagers. The Social Security Contributions and Benefits Act 1992 outlines the rules for National Insurance (NI), including the differences between contributions for employed and off- payroll workers. These rules include what’s known as the Agency rules Section 44 of the ITEPA 2003 and off-payroll working (OPW or IR35) rules via intermediaries Chapter 10 of ITEPA 2003. We will also refer to HM Revenue & Customs (HMRC) guidance and best practice for
compliance. Additionally, we will touch on the rules under the Construction Industry Scheme (CIS). Employed vs. Self-Employed Rules for Tax/NI Determining whether a worker is employed or self-employed is crucial for tax and NI purposes. The distinction affects the type of tax and NI they are required to pay and who is required to deduct and/or pay it. Whilst for employment law purposes there are three categories of employment status, as that legislation includes the category of worker, for tax/NI there are only two. There is no statutory test to determine employment status for tax/NI purposes. An individual’s employment status is therefore determined by the application of several tests established by case law and should be considered each time an individual is engaged directly, and not via an intermediary (such as a labour supplier, limited company or partnership). The case law tests’ main factors include: 1. Personal Service: The individual must agree to provide their services personally. If they can genuinely send a substitute to do the work, they are more likely to be self-employed.
Whilst for employment law purposes there are three categories of employment status, as that legislation includes the category of worker, for tax/NI there are only two. There is no statutory test to determine employment status for tax/ NI purposes.”
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ISSUE 8 GLOBAL PAYROLL MAGAZINE
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