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HMRC internal manual

Employment Status Manual

Procedural aspects of status cases: Providing advice Signed written contracts

Where an engager approaches you for advice about a signed written contract and, taken at face value, it appears to be a contract for services (self-employment) then please establish the following before providing an opinion:

  1. Ask whether the contract comprises part of a marketed product, that is, has the contract been bought by the engager from someone other than the engager’s solicitor or accountant.
* If yes, do not provide an opinion and refer details of the enquiry to PTP&P (Technical) via the SEC Technical team.
  1. If the answer is no, ask if the named individual was previously engaged under another type of contract.
* If the answer is yes:
* Ask to see the previous contract,
* Establish precisely what has changed in practice since the original contract applied,
* Ask for the name and address of who provided the new contract, and
* Refer details to PTP&P (Technical) via the SEC Technical team before giving an opinion.

If the answer is no, provide an opinion and keep a central record of the request. Where you feel it is appropriate, make arrangements to check on the facts after a suitable interval.

If subsequent requests are received from the same source, refer details of the enquiry to PTP&P (Technical) via the SEC Technical team before providing an opinion.

Do not give advice on cases where an employer proposes to change the status of existing employees. You can comment when the changes have been implemented.  

When giving your written informal opinion, include the following body of text:

‘My view assumes the written terms reflect the true arrangements. If the contract is not fully acted upon in practice or there are other oral or implied conditions which have not been presented to me, my opinion may be modified. As part of its normal compliance activities, HMRC reserves the right to check that the working arrangements are as set out in the contract.’

For IR35 cases, see the guidance at ESM3280 onwards.

Hypothetical cases

The problems

HMRC are often asked to say whether they will treat a proposed contract as a contract of service or as a contract for services. Such requests present three main problems:

If you decide the worker is an employee, the engager may return with a succession of fresh proposals. There is a risk that you will be drawn into a time-consuming attempt to get the worker classed as self-employed.

Only one party to a proposed arrangement may ask for your opinion, however it takes two to make a contract and you may find later that the other person takes a different view about the facts.

The terms of the proposed arrangement may not be the same as the reality when the work starts. It frequently happens that the parties fail to realise how their relationship will develop. For example, they may say that the work will not be subject to control but, in practice, the ‘employer’ keeps a tight grip on the way work is done.

In all these situations, any time you spend on the proposed arrangements could be unproductive. Usually it is in marginal cases that the parties seek an advance opinion - cases where minor changes could easily alter the outcome. For this reason, we do not undertake to comment in every hypothetical case. In no case do we undertake to give a firm opinion about the tax basis or NICs category before the worker has started.

When you can comment

Where you are satisfied that the parties genuinely need to find out in advance where they are likely to stand, you may comment informally provided all the following conditions are satisfied:

  1. The contract is not part of a marketed product.
  2. The contract is in writing and either contains or is accompanied by sufficient detail to give you a reasonable understanding of what the job entails and how the worker is to go about it.
  3. The contract shows who is engaging the worker. Do not deal with contracts drawn up without a particular business in mind.
  4. The contract is for a new business or a type of worker new to the business. Do not give advice on cases where the employer proposes to change the status of existing employees.

Where you consider the worker will probably be self- employed you should:

  1. Tell the enquirer your view in writing,
  2. Stress that your view is only provisional because no firm conclusion can be reached until it can be established how a contract operates in practice,
  3. Say that if the contract is not fully acted upon in practice or there are other oral or implied conditions which have not been presented to you, your view may alter
  4. Inform that if the contract is implemented and the engager wants to be certain they have no obligation to account for PAYE tax and Class 1 NICs, they should contact you again.

Where you can comment and you consider the worker will probably be employed you should tell the enquirer your view in writing.

* Do not be drawn into detailed discussion of your view which is, after all, only provisional. If there is any dispute or further proposals are made say that you cannot comment again until the work starts. Never suggest how the contract might be altered to achieve the desired status - the terms of engagement are a matter for the parties concerned taking into account the requirements of the business. 

Advice given on this basis is in line with CAP 1.

Records to keep and follow-up action

Make a permanent note so that you can trace the correspondence etc later. Where you feel it is appropriate, make arrangements to check on the facts after a suitable interval - for example, if you doubt whether the written contract will be implemented as claimed or there are substantial numbers involved.