Determining your employment status

There is no statutory definition of ‘employment’ or ‘self-employment’. Rather, there is a series of ‘tests’ which HMRC will apply to ascertain whether someone is classified correctly.

Because large amounts of both tax and NICs can be at stake, HMRC can take quite an aggressive line and mistakes can cost you dearly, so advice specific to your situation is essential.

‘IR35’ rules require businesses to consider each and every contract they enter into for the provision of services. The test is whether or not the contract is one which, had it been between the owner or partner and the customer, would have required the customer to treat the owner or partner as an employee and therefore be subject to PAYE.

The contract ‘passes’ if the owner/partner would have been classified as self-employed; it fails if the owner/partner would have been classified as an employee.

If the contract ‘fails’, the business is required to account for PAYE and NICs on the ‘deemed’ employment income from the contract at the end of the tax year.

This is done using specific rules. We would welcome the opportunity to advise you about these.

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