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HMRC internal manual

Employment Status Manual

From
HM Revenue & Customs
Updated
, see all updates

Procedural aspects of status cases: written opinion - standard format letter 1

The following letter is to be issued where general case law applies.

Dear

As you are aware I have been considering your employment status with respect to your engagement with [XXXXX] for the period from DD/MM/YY [to DD/MM/YY/or to date [if the engagement is ongoing]]

or

As you are aware I have been considering the employment status of [XXXX] in respect of [his/her] engagement with you for the period from DD/MM/YY [to DD/MM/YY/or to date [if the engagement is ongoing]].

I have enclosed guidance at Annex A describing how the HMRC decides employment status.

In this case

…………………………………………………………………………………………………………………………………………………………….…………………………………………………………………………. …………………………………………………………………………………………………………………………………………………………….…………………………………………………………………………. …………………………………………………………………………………………………………………………………………………………….………………………………………………………………………….

[Insert your explanation here along with a full account of the facts on which it is based. Your explanation can be as long as necessary. In cases where you have taken into account the worker’s personal factors and you are writing to the engager you should only refer to them in a general way and should not provide details.]

…………………………………………………………………………………………………………..………….……………………………………………………………………………………………………. …………………………………………………………………………………………………………..………….…………………………………………………………………………………………………….

I therefore consider that you are/were employed/self employed in respect of your engagement with [XXXX] for the period from DD/MM/YY[to DD/MM/YY or to date (if engagement is ongoing)].

or

I therefore consider that [XXXX] is/was employed/self employed in respect of the engagement with you for the period from DD/MM/YY [to DD/MM/YY/or to date (if the engagement is ongoing)].

This opinion applies for the purposes of income tax, National Insurance contributions and VAT.. It does not apply for other purposes for example, National Minimum Wage and Employment Protection legislation.

Further Information

If you disagree with the contents of this letter you should tell me as soon as possible why you think it is wrong and provide any further information and/or documentation which you think is relevant. I will consider what you have told me and advise you accordingly.

Yours

Annex A

How we decide employment status

A person’s tax and National Insurance contributions liabilities are determined in accordance with the person’s employment status. An employee is a person who works under a contract of service, also referred to sometimes as a contract of employment. A person who works under a contract for services is self-employed.

HMRC legislation does not define ‘contract of service’ and we have to seek guidance from the employment status case law handed down by the Courts over the years. The Courts have identified factors that help to determine if a particular contract amounts to employment or self-employment. A contract does not have to be in writing. It can be written, oral, implied or a combination of all three.

Relevant factors include

  • whether there is an ultimate right of control on the part of the engager over what tasks have to be done, where the services have to be performed, when they have to be performed and how they have to be performed.
  • whether personal service is required
  • whether the worker has the right to provide a substitute or engage helpers
  • who has to provide the equipment and/or materials
  • whether the worker has a real risk of financial loss
  • whether the worker has the opportunity to profit from sound management for example, by reducing overheads and organising work effectively
  • the basis of payment
  • whether there are ‘employee type’ benefits for example, sick pay, pensions, holiday pay, etc.
  • whether the worker works exclusively for the engager
  • whether the worker is part and parcel of the engager’s business or organisation
  • whether there is a right of dismissal by giving notice of a specific length
  • factors personal to the worker for example, number of engagements and business organisation
  • the intention of the engager and worker as regards employment status.When all the facts have been established the approach endorsed by the Courts is to stand back and look at the picture as a whole. It can then be seen whether the overall effect is that of a person in business on his/her own account or a person working as an employee in somebody else’s business.