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If an employee is wrongly categorised as self employed, the employer has a liability for the tax and NIC on the gross equivalent of the amount paid to the employee, with normally no recourse to the employee. It can be therefore be a very expensive mistake.
A self employed taxpayer pays tax under ICTA 1988 Sch D, which allows as deductions from income, expenses which are incurred wholly and exclusively for the purpose of the trade.
An employed taxpayer pays tax under ICTA 1988 Sch E, which allows as deductions from income, expenses which are incurred wholly, necessarily and exclusively for the purpose of the employment.
If you want it, how do you get Self Employment Status?
Self employed status is a matter of fact. It arises when work is done under a contract for services, not a contact of service or contract of employment.
As examples, a supermarket cashier who works standard hours, where directed, trained in what to say, is an employee, but by contrast a practicing accountant is not. The accountant may provide work to an agreed deadline, but can choose whether to do the work personally or use assistants, when and probably where to actually do the work, and in a manner he/she considers appropriate. Between those two examples are some less clear cases, but in every case the Inland Revenue has to be persuaded on the facts of the case, not by mutual agreement between the worker and employer.
Our self employed checklist may identify problem cases.
The Inland Revenue have published their view of the matters to be considered in an article on IR35 in Tax Bulletin 45 available at www.inlandrevenue.gov.uk/bulletins and in respect of particular occupations at www.inlandrevenue.gov.uk/manuals/esmmanual/part4000/esm4000.htm.
See also Contract of Employment, Working Time Regulations, PAYE, NIC, SSP, SMP, SPP, SAP, NMW, Student Loans.
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