There are many myths and misunderstandings about what makes someone self-employed. Some of the ones we regularly hear are:
- They work for other people – Wrong
- They raise invoices – Wrong
- They have a UTR number – Wrong
- They have tools – Wrong
- They have insurance – Wrong
- They sign a generic self-employed contract – Wrong
- They want to be self-employed – Wrong
If you use self-employed workers and are going to argue the above with HMRC to show they are genuinely self-employed, you may want to have a rethink. The courts’ approach to employment status may be very different to what you are expecting.
You need to be 100% confident of your position if you are going to stand any chance of convincing HMRC. We have put this to the test with some common statements we hear, and the likely response from HMRC:
They work for others so must be self-employed!
HMRC: An employee can have multiple jobs. Just because they work for other companies does not mean they are self-employed when working for you. Each engagement is considered on its own merits.
They only work for me for short periods of time some.
Self-employment is not determined by how long they work for you. There are many PAYE jobs that are for very short periods of time. A company may only need someone for a day but still be required to operate PAYE and NIC’s.
An employee can quite easily be taken on, on a short term, flexible or a zero hour contract. Why is this any different?
They invoice for the work.
This is purely an administration function and a result of the parties believing it is self-employment. If it was as easy as that to guarantee someone was self-employed, no companies would have employees.
They have a UTR number so are registered as self-employed.
Anyone can register for self-assessment. Having a UTR does not mean someone is self-employed, just that they can complete tax returns.
They have their own insurance.
Excellent, but having insurance does not make someone self-employed. There are no tax cases in the last 100 years whereby an individual was deemed self-employed just because they have their own insurance. It does go some way to acknowledging that they are responsible for the work and are exposed to risk, but having insurance would be a minor factor in favour of self-employment, at best.
They sign a standard self-employed contract
Contracts can be great for establishing the rights and obligations of the parties but they must reflect the working relationship. If HMRC can find any way in which the contract differs to what happens in practice, they will disregard the contract.
There are also many intricacies with the vast number of tax cases that have gone before the tribunals. Contracts can also be poorly worded or out of date. A poorly worded or inaccurate contract can cause more damage than not having a written agreement in place.
They want to be self-employed
It is a long established principle of employment status that the intention of the parties cannot determine whether someone is self-employed or not. Employment status is not a choice, it is based on the nature of the relationship. The only time the courts will consider the intention of the parties is if they cannot otherwise decide.
Still confident they are self-employed?
We could go back and forth all day dismissing arguments as to why someone is self-employed. The reality is that there are hundreds of case law judgments on this topic and for every argument put forward, they will be case law dismissing that argument.
HMRC will know the case law and it can be very difficult to convince them that an individual is self-employed. Why go through all of that when you can subcontract the risk to Marble and leave it for us to argue. We know this area inside out and can ensure everyone is compliant and protected. Don’t forget that we have passed HMRC and VAT compliance reviews which is testament to our approach to compliance.