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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: status: background to determining status

The aim of employment status work is to make sure that the correct schedule of charge is applied and the correct class of NICs is paid. It is not to impose any particular status.

For tax purposes an employment exists where an individual works under a contract of employment, sometimes called a ‘contract of service’ or a contract of apprenticeship. Such individuals are employees and are taxable under ITEPA 2003, and employers must operate PAYE. For NICs purposes where a worker is an employed earner they are subject to Class 1 NICs.

Where a person is an ‘office holder’ the income will normally be chargeable to income tax under ITEPA 2003 and the person will be liable for Class 1 NICs. SeeESM2500 for guidance about ‘offices’.

A self-employed person works under a contract for services is responsible for Self-Assessing the income and is subject to Class 2 and 4 NICs.

There are no statutory definitions of ‘office’ ‘employment’ or ‘self-employment’. Decisions have to be made in the light of judicial guidance in cases dealing with tax law and other areas such as social security benefits and employment rights law.

Engagers (the provider of the work) may claim that PAYE has not been operated and Class 1 NICs not accounted for because a worker is self-employed. Facts are extremely important in any such dispute and that is why there is such emphasis on obtaining them. See COG907540 for what you should do.

Note: Certain industries have specific guidance and this is contained in the Employment Status Manual