ESM11155 - Check Employment Status For Tax: Worker’s contracts - Series of contracts

Understanding whether a worker has had previous contracts with the hirer and are likely to have future contracts with the same hirer, can help paint a picture of how the worker provides their services to that client.

The pattern in which workers provides their services can be a factor in helping to understand their employment status. See ESM0553 for further guidance.

Looking at how contractual relationships evolve can be a potential indicator as to how enduring the relationship with the client is. A more enduring relationship with the client can be a pointer to employment. Equally, short fixed-term contracts where there is little, or no, on-going relationship can point more towards self-employment.

CEST asks ‘Has the worker had a previous contract with your organisation?’ or ‘Have you had a previous contract with this client?’

If a worker has or has had another contract with the hirer, then this will fall within the ‘Yes’ category for CEST. Short-term contracts that are renewed would fall within this ‘Yes’ category.

Separate contracts which run concurrently would fall within the ‘Yes’ category for CEST.

If this is the first time a worker has worked for the hirer, this would fall within the ‘No’ category for CEST.

EXAMPLE

Stanley is a mechanical engineer. A company that makes car parts and uses many pieces of heavy equipment engages Stanley to perform repairs on machines.

  • If this is the second machine Stanley has repaired for the company and he was contracted separately each time, then Stanley has had a previous contract with the hirer.
  • If this is the first machine Stanley has repaired so is the first contract or the company hired Stanley to repair both machines under one contract, then Stanley has not had a previous contract with the hirer.

CEST asks: ‘Will this contract start immediately after the previous one ended?’

If a contract starts immediately after a previous contract with the same hirer ends, then this will fall within the ‘Yes’ category for CEST. This means there is no material gap between the contracts. Where a gap exists between the contracts and is merely a weekend or holiday, this would still fall within the ‘Yes’ category for CEST.

If the previous contract ended and there was a material gap between that contract ending and a new one beginning, for reasons other than being on holiday, then that would fall within the ‘No’ category for CEST

If a contract overlaps with another contract with the same hirer, then this will fall within the ‘Yes’ category for CEST. The important question is whether there is a material gap between the contracts.

Where a worker is engaged on a part-time basis their ordinary non-working days should be disregarded in determining whether there is a material gap between contracts.

Where the parties agree to a material gap between contracts purely to achieve a status outcome HMRC will regard this as a contrived arrangement.

EXAMPLE

Stanley is a mechanical engineer. A company that makes car parts and uses many pieces of heavy equipment engages Stanley to perform repairs on machines. This is the second contract Stanley has had with the company.

  • If Stanley’s first contract finishes on Friday and the new contract starts the following Monday, the second contract has started the next working day, after the previous one ended. So the new contract started immediately after the previous contract ended.
  • If Stanley’s first contract finished and he takes two weeks’ holiday, and then on return starts the next contract on his first day back, then the second contract has started immediately after the first. There has been no material gap of working between the contracts.
  • If Stanley’s first contract ends and three months later he takes up another contract with the hirer, then the second contract has not started immediately after the first. Hence, a gap does exist between contracts.

CEST asks: ‘Is the current contract the first in a series of contracts agreed with your organisation?’ or ‘Is the current contract the first in a series of contracts agreed with this client?’

If there is an understanding between the hirer and worker , whether contractually or impliedly, that following this contract another one or more will be offered, then this will fall within the ‘Yes’ category for CEST. In considering whether there is an understanding that further work will be offered and accepted you should consider the parties usual working practices.

If the current contract is a framework under which the worker may be given work, you should consider the engagement the worker actually undertakes. If the current engagement is the first in a series of engagements, then this will fall within the ‘Yes’ category for CEST.

If the parties know this is a short fixed-term contract and other tasks will be contracted through subsequent short fixed-term contracts, this will fall within the ‘Yes’ category for CEST.

If this is the only contract with the hirer and there is no indication whatsoever that other contracts will be or have been offered, this would fall within the ‘No’ category for CEST.

EXAMPLE

Stanley is a mechanical engineer. A company that makes car parts and uses many pieces of heavy equipment engages Stanley to carry out repairs on machines. Multiple machines require repairs.

  • If Stanley agrees to fix multiple machines and each repair will be contracted for separately, then this is the first in a series of contracts.
  • If Stanley agrees to fix machines all under one contract and no future arrangement is made for ongoing repairs or other engineering tasks, then this is not the first in a series of contracts.

CEST asks: ‘Does the current contract allow for it to be extended?’

If the contract either has clauses allowing for it to be extended, or if the contract has no fixed end date, then this will fall within the ‘Yes’ category for CEST.

If the contract end date cannot be extended or the contract does have a fixed end date, then this will fall within the ‘No’ category for CEST.

EXAMPLE

Stanley is a mechanical engineer. A company that makes car parts and uses many pieces of heavy equipment engages Stanley to perform repairs on machines.

  • Stanley is fixing a machine and the contract states the end date based on when the work is estimated to finish. The work is not done within that time. If the contract allows the estimated end date to be extended to complete the work, then the contract can be extended.
  • The company requires a new machine and ask Stanley to use his expertise to build it for them for an agreed price. The contract states that Stanley should deliver the new machine by an agreed date and includes penalty clauses for late delivery. Stanley would not be paid for work beyond the end date. The contract has a fixed end date even though the work may go beyond that date, so the contract cannot be extended.
  • If Stanley has a contract without an end date, so he is hired to work until it is decided his services are no longer required, then the contract can be extended.
  • If the contract is a short fixed-term contract and Stanley will leave on the end date specified in the contract, then the contract does not allow for it to be extended.