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HMRC internal manual

Labour Provider Guidance

Interventions: compliance routes: Employer Compliance: employment status

Employment status work aims to ensure that income is charged correctly for tax and the correct class of National Insurance (NI) is paid.

Whether an individual is employed or self-employed will depend upon the nature of the relationship with the person for whom the services are provided. There will be cases where this is not easy to decide.

Employment Status & Intermediaries (ES&I) teams are responsible for the majority of employment status work. There is a FIS/ES&I Partnership agreement that shows how FIS LMI teams will deal with the following employment status risks:

  • Cases of false self-employment where they are being used to disguise an illegal off-record work force or facilitate criminal or fraudulent activity will be worked on LM teams including cases directly linked to a current enquiry. Where status arises as a risk in an otherwise FIS case, then FIS will continue to work that risk keeping ES&I sighted to inform the overall picture of risk.
  • Contrived labour arrangements  involving off record profiteering from VAT & CIS failures attached to sham entities will be worked within the LM Teams. Where these indicators are not present they will be referred to ES&I. 
  • Any cases involving Payroll Fraud
  • FIS LM will lead on the development and implementation of the Due Diligence strategy aimed at educating and influencing End Users, or other labour suppliers in the contractual chain
  • FIS LM will lead on new style PSC and emerging intermediary‎ risk where there is a need for a holistic approach covering other heads of duty beyond PAYE or where there is clear evidence of evasion or Fraud. ES&I will continue to work emerging risks in this area where the main risk relates to EC issues connected to the supply of labour. It is acknowledged that some cases will fall between the two scenarios outlined and where this happens FIS and ES&I will work together through EICU  to understand how best to take the risk forward.
  • Cases involving the Gangmasters and Labour Abuse Authority (GLAA – formerly the Gangmaster Licensing Authority - GLA) and the Security Industry Authority (SIA) where fraud, criminal activity is present. (Others can still be worked in ES&I with guidelines/strategy agreed)

Where tax fraud is not apparent but there is strong suspicion of worker exploitation or illegal working then details of the case should be passed to the Illegal Working and Modern Slavery team (via their Mailbox)  in FIS for consideration.

Further guidance on employer status work can be found in the Employment Status Manual 

Issuing Section 8 decisions where the information needed to identify individual employees cannot be obtained. 

Following the issue of BGN 017/17 and BGN 023/17 IPD Technical has now provided updated guidance in BGN 026/17 on how to treat cases where it has not been possible to identify some or all of the employees. Please contact Steve Perez if there are any problems in following this guidance.

Employment Status Indicator {#IDAGQ24H}

The Employment Status Indicator should not be used by engagers who provide staff under third party contracts.

This is a tool that can be used to help determine whether a person is employed or self-employed.