Employed or Self-employed ? (IR 35 rule)
A worker’s employment status
It is important to determine the status of a worker correctly because the tax and NIC treatment of employee and self-employed are different.
For employee, you need to pay for income tax and NIC 1 under PAYE and can claim expenses which incur ‘Wholly, Exclusively & Necessarily’ in the performance of employment. On the other hand, Self-employed pays for income tax and NIC 2 & 4 via Self Assessment and deducts expenses which incur ‘Wholly and Exclusively‘ for trading purpose.
Factors to consider for Determining Employment Status
You should consider following list of the factors in determining whether you are employee or self employed:
- Mutuality of obligation
- Right of control
- Provision of own equipment
- Right of substitution and engagement of helpers
- Financial risk
- Opportunity to profit
- Degree of integration into the organisation
- Right to terminate the contract
- The number of paymasters
Mutuality of Obligation
Where your client has an obligation to provide work and you have an obligation to accept the work, then you could be employee.
Right of Control
Where the client controls you what to do, how to do and when to do the work, then you could be employee.
Provision of Own Equipment
Where you use your own tools and equipment for working, you could be self -employed.
Right of Substitution and Engagement of Helpers
If you will have no freedom to send a substitute in your place, you could be employee.
Financial Risk
If you risk your own money by buying assets needed for the job, bearing the running costs and paying for overheads and materials or you are also responsible to rectify unsatisfactory work in your own time and at your own expense you could be self-employed.
Degree of Integration into the Organisation
Where you integrated into the business ie you have an access to normal employee facilities, pension or staff functions etc, then you could be employee.
Right to Terminate Contract
Where your client has a right to terminate an engagement by giving notice of a specified length, then you could be employee.
The Number of Paymasters
If you typically perform services for a number of different businesses, you could be self-employed.
IR35: off-payroll working rules
IR35: off-payroll working rules
The IR35 (off-payroll working) tax rules apply when you supply your personal services through an intermediary trading vehicle such as a company or partnership to an end client.
The rules apply where:
- you supply your services for an end client via an intermediary that you control, such as your own Personal service company (PSC) and
- The nature of the engagement is such that if you were to supply your services directly to the end client as a self-employed individual, the end client would, by applying the employment status tests for PAYE, treat you as its employee.
Checking employment status
- End clients should start by using HMRC’s Check Employment Status Tool ‘CEST’ Check employment status for tax.
- HMRC accepts the CEST results of the test provided that the questions are answered as accurately as possible.
Will IR35 apply to all companies which are intermediaries?
IR35 only applies to companies when “the conditions of liability” are met:
- The company is not an associate of the end client.
- The worker, you (or your family) have a material interest in the company.
- You own more than 5% of the ordinary share capital of the company, or
- You are entitled to receive more than 5% of any dividends from the company.
- You receive or could receive, payments or benefits from the company which are not salary, but payment for the services provided to clients.
- You draw out your income from the contract via dividend or in some other form that is not subject to PAYE and NICs.