Employment Status

Are you a contractor? If you work for someone else, it is important to know whether you are working for that person in an employed capacity or in a self-employed capacity as an independent contractor.

Your employment status will determine the charge to tax on income from your employment or self-employment. It will also determine the class of NICs, which are to be paid.

Umbrella Companies employ you for tax purposes and complete central returns for all their contractors. It's less hassle and more flexible for you but take home pay is typically less than that the limited company option.

The best option for you depends on your plans, 'one off' contract or 'contractor for life'? [Read More...]

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Construction Industry Scheme CIS Employment Status

CIS Employment Status FAQs

It is easier for me to take on workers as self-employed. If we agree, why cant we choose?

Engaging workers on a self-employed basis can have a number of attractive features for both parties, but whether someone is your employee or is self-employed depends on the particular working arrangements and not upon the preferences of the people involved. The tax rules for self-employed people are designed to reflect the financial risks taken by people genuinely in business on their own account and should only be applied to those people.

If there is no written contract between me and the person I take on, does that mean he or she is self-employed?

No. Workers sometimes claim that they are self-employed because they do not have a contract with the person for whom they work. What this usually means is that they do not have a written contract, but if they have agreed to work in return for payment, a contract must exist – either a contract of service (employment) or a contract for services (self-employment).It can be written, spoken, implied or a combination of all three. The contract is an important factor in considering employment status and is particularly valuable to the worker because it determines their rights and obligations.

If workers I engage have subcontractors tax certificates (CIS6) or registration cards (CIS4), does that mean they are self-employed?

Not necessarily. Just because they hold a certificate or card does not mean that every job they take on is as a self-employed person. It is the actual terms, conditions and facts that apply to each job that determine whether they will be employed or self-employed in that particular case. Certificates and cards show the way that a contractor should treat payments made to the holder if the terms of the engagement are a contract for services (self-employment).If the relationship is a contract of service (employment), then the contractor must deduct PAYE and Class 1 NICs in all circumstances, even if the worker has a certificate or card. There are no certificates and registration cards in the new CIS system.

If the terms of the engagement change part way through the contract, what should I do?

  • If the change results in a worker becoming employed, you should tell HMRC and begin to deduct tax and NICs from his or her earnings. If you fail to do so, you could be held liable for the deductions, which should have been made, and you may also be liable for interest and a penalty from HMRC.
  • If the change results in a worker becoming self-employed, he or she will be responsible for his or her own tax and NICs.

An employee who took his apprenticeship with us now wants to do the same work for us but on a self-employed basis. Can we agree to this?

  • It is not the workers choice. The terms, conditions and facts under which he or she is engaged should determine the employment status of the worker.

I took on a worker on a casual basis whom I genuinely regarded as self-employed, but I have subsequently made this a permanent arrangement on terms and conditions that suggest they are an employee. What should I do?

  • You must start to operate PAYE when you next make a payment. If the worker has been paid for past periods of engagements on terms and conditions amounting to employment you could be liable for the PAYE tax and NICs you should have deducted, so it is important that you make regular reviews of the status of your individual workers to avoid this happening.

Are there categories of worker where specific rules apply?

  • The same tests apply to all, including white-collar workers. It is important that you consider the status of your entire workforce, including managers, estimators, site supervisors and professional staff, as well as manual workers.
  • However, if a worker is supplied by an agency and it is not solely on an introductory basis, special rules might apply with the result that the agency has an obligation to operate PAYE and account for Class 1 NICs.

Are there categories of worker who will always be employees?

  • It all depends on the facts. But, as examples,
  1. General labourers paid by the hour
  2. Foremen and supervisors
  3. Heavy plant operators who do not provide the plant
  • Are rarely engaged on terms amounting to self-employment. But, as in other scenarios, it is the terms, conditions and facts of the individual engagement that will determine the employment status of the worker.

Does working for one employer for a long period point towards employment?

  • This is certainly a factor to consider in the overall picture (just as a series of short-term engagements with many different contractors may point towards self-employment), but it is only one factor. It is important to pay close attention to the status of long-term workers because of the PAYE and NICs liability, which may accumulate if you do not operate PAYE when you should.

What happens if an employment tribunal finds that a subcontractor, who had been treated as self-employed, was in fact an employee?

  • Employment tribunal decisions are not binding on HM Revenue and Customs, but they usually take into account similar factors. So the decision is likely to be the same when considering an employee for tax purposes. If a case were brought to the attention of HMRC, their policy on collecting unpaid tax and NICs in these circumstances would apply.

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HMRC Compliance

It's the basics... Compliance with Tax, VAT, PAYE and fiscal arrangements is mandatory for contractors regardless of whether you use an umbrella company or your own limited company.

Incredible then that there are still rogue umbrella companies and limited company accountants who expose their contractors to fraud. Umbrella Compare provides THE solution, we thoroughly vet all umbrella companies and limited company accountants that we list [Read more...].

Umbrella Compare provides a holistic overview of contracting with the aim of helping new and old contractors find the right payroll solutions. Contracting should be about focusing on the contract, not payroll, accounting, HMRC and bureaucracy.