HMRC internal manual

Employment Status Manual

ESM0513 - Guide to determining status: how do you know if there is a contract of service?

There is a considerable body of case law which provides guidance on what constitutes a contract of service. We do not follow this case law for tax purposes in the following circumstances

  • certain divers and diving supervisors are treated as carrying on a trade by virtue of Section 15 ITTOIA 2005 (see ESM4050), and
  • certain agency workers whose remuneration is to be treated as earnings under Part 2 Chapter 7 ITEPA 2003 (see ESM2000 onwards)

With regard to NICs, there are more exceptions in the SS (Categorisation of Earners) Regulations 1978 (SI 1978 No.1689) but see the guidance at ESM0122 for further details. Particular groups of workers can be treated as Class 1 (employed) or Class 2 (self-employed) contributors, or exempt from NICs altogether. These regulations also include who should be treated as the secondary contributor in certain circumstances.

The IPD Helpline can provide copies of most case law authority which you may need to refer to in detail.

Case law shows that there is no magic formula by which a contract of employment can be identified. Rather, all the possible factors which bear on the relationship between the parties must be examined, given their proper weight, and a judgement made about their overall effect.

However, the following passage from the judgement of MacKenna J in the case of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance (see ESM7030) has been quoted in later cases

’A contract of service exists if these three conditions are fulfilled.

(i) The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master. (ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master. (iii) The other provisions of the contract are consistent with its being a contract of service.

As to (i). There must be a wage or other remuneration. Otherwise there will be no consideration, and without consideration no contract of any kind. The servant must be obliged to provide his own work and skill. Freedom to do a job by one’s own hands or by another’s is inconsistent with a contract of service….’

Each case must be looked at in the light of its own particular facts. It is not generally appropriate to try and directly compare one case with another. In Walls v Sinnett (see ESM7130) Vinelott J stated:

‘It is in my judgement, quite impossible in a field where a very large number of factors have to be weighed to gain any real assistance by looking at the facts of another case and comparing them one by one to see what facts are common, what are different and what particular weight is given by another tribunal to the common facts. The facts as a whole must be looked at, and what may be compelling in one case in the light of all the facts may not be compelling in the context of another case.’

The above was quoted with approval in both the High Court and Court of Appeal in the more recent case of Hall v Lorimer (see ESM7160).