Chapter 5 Employed or self employed

Question 1

5.1 Introduction

Answer 1

A contract of service is where an employee works for an employer. A contract for services is where an individual is self employed

Question 2

5.2 Why does it matter

Answer 2

It is important to determine the status of a worker because the tax and NIC treatment differs.

Question 3

5.3 Determining employment status

Answer 3

Case law has dictated that there must be four factors present before an individual can be classed as an employee:
• Mutuality of obligation – where an engager is obligated to perform work and they are obliged to accept, this points to an employee.
• Wage paid to the worker
• Personal service – where a person does not have to personally perform services this is not an employee. An employee will have no freedom to send a substitute in their place
• Control – the employee will have little control over what they do on a day-to-day basis
Once the above four factors are present, the court adopts an economic reality test to determine if the person is an employee. The following are factors taken into account for this test:
• Degree of integration into the organization – the employee will be integrated into the business of an employer
• Provision of own equipment – an employee rarely is responsible for providing their own equipment.
• Basis of payment
• Financial risk – employees do not risk their money in providing assets needed for the job
• Opportunity to profit
• Business organization
• The number and length of engagements – an employee is only likely to be employed by one person at a time
• Name of the contract and position of the parties
This is not an exhaustive list.

Question 4

5.12 Some Leading Tax cases (P59-61)

Answer 4

• Hall v Lorimer 1993

* Autoclenz Ltd v Belcher 2011