It is common for HMRC to question and challenge the employment status of individuals in many situations, including the medical and dental profession. If HMRC succeed in their challenge it is often because of an expectation by the engager that it is ok to follow historical practices. The truth is that the interpretation of the rules and case law is both complex and changing. It is also fraught with grey areas.
The consequences of getting it wrong can be significant with both Income tax and employer’s and employees’ national insurance obligations to pay. Interest on late payment is automatic but also penalties for incorrect declaration of taxes often arise although these can be negotiated. In the case of an employer found to be treating employees as self-employed, HMRC would seek to collect the unpaid PAYE and national insurance from the employer rather than the employee because it was the employer’s duty to deduct this from pay in the first place. The fact that HMRC have accepted self-employed tax returns from the employee is irrelevant.
Unfortunately there is no definitive test that can be applied to determine employment status. Instead, tax case law developed over the years has generated a number of key indicators to help define whether one would be considered employed or self-employed. A good summary of these indicators is shown below. You might like to consider how you engage your hygienist, for example, as you read through it.
| Employed | Self Employed | |
| Method of payment | Paid a regular wage by the day, week or month | Invoice the client for work done |
| Who has control over how work is done? | The way you do your work is supervised | You are trusted to do the work yourself – as long as the final product is up to standard |
| Where do you do the work? | At the place required by your engager | At a place you decide, although some jobs might have to be carried out ‘on site’ |
| When do you do the work? | You are required to turn up at a certain time and work the agreed hours | You have freedom to decide when you do the work, in consultation with you engager |
| Benefits | You are given rewards other than in cash for your work, such as vouchers, free or cheap meals, a company car or shares | You tend only to be paid in monetary form – cash, cheque or bank transfer – rather than ‘in kind’ although some businesses might engage in ‘barter’ transactions |
| The work you do | Your engager can move you from job to job as needed – for instance, you may have to cover for someone who is sick | You only do the particular job which you agreed to do, unless you subsequently agree a change in terms of providing your services |
| The number of jobs | You have one job at a time, or a small number of regular jobs, such as one in the morning and one in the evening | You work for a lot of people and you juggle their requests like a builder or a taxi driver |
| Your role | You have a recognised role at the place where you work – for instance, people may report to you, or you may be listed in the phone book | You are an independent provider of services and not a permanent part of the engager’s business |
| Your business? | You do not run a business from home or other location. When you need another position, you apply for jobs for example by answering advertisements online or in the newspaper | You have a business which you run from home – for instance, you advertise your services through yellow pages, you take appointments, you have your own business cards, you are VAT registered |
| Who does the work? | You do the work yourself | You may send someone else to do the work for you, if you run a business, or arrange for a job to be done and you supervise others whom you bring with you. For example, if you are a gardening business, you might take on a job landscaping a 2 acre garden. You would be unlikely to do it all yourself, but you would quote a price for the job and in turn pay other people to help you |
It helps to comply with as many of these indicators as possible. It is important to note that employment status is not a choice but a matter of circumstances and HMRC will look through a contract that does not reflect the reality of the relationship.
If you would like to discuss any of these points please get in touch.
