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HMRC internal manual

VAT Taxable Person Manual

From
HM Revenue & Customs
Updated
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Particular trades: driving schools: are the instructors employees of the driving school?

Where HMRC has reached a decision for Direct Tax purposes on the employment status of a driving instructor, we will abide by that decision.

  • If self employed status has been granted, you may ignore this section and proceed to VTAXPER66400.
  • If employment status has been granted, this indicates that the instructor is an employee.

However, you will need to justify your stance not by reference to what HMRC says, but from consideration of:

  • the normal characteristics of employment: see VTAXPER34000, plus
  • the four factors - control, chance of profit, risk of loss, and ownership of tools.

If the Direct tax status of an instructor is disputed or undecided, you will similarly have to consider these factors to decide whether the instructor is engaged under a contract of service or a contract for services.

The four factors apply to driving schools in the following order of importance.

  • Chance of profit Where the school pays the instructor a guaranteed minimum or set weekly wage, this is strongly indicative of a contract of service; in this situation, the instructor has little chance to profit.
  • Risk of loss A guaranteed minimum or set weekly wage is also indicative of the school, and not the instructor, bearing the risk of loss. It is the school who will suffer if not enough lessons are given, and the only sanction it can apply is to terminate the instructor’s contract. If the school meets expenses such as insurance, repair and maintenance of the vehicle, and costs of petrol and oil used during tuition, these are further indicators of a contract for service, since this leaves the instructor with little risk of personal loss.
  • Ownership of tools If the vehicle is owned by the school and no charge for its use is made to the instructor, this indicates a contract of service.
  • Control A very high degree of control would be needed on the part of the school, to support the contention that the instructors were employees under contracts for services. One would expect to see the school stipulating the hours at which the instructor works, and setting fees for pupils without consulting the instructors.

Thus in a contract of service situation, the picture you will see emerging is one of the school tightly controlling the work of the instructor, but cushioning the instructor from financial risk by guaranteeing a minimal level of pay and bearing variable costs itself.

There are two tribunal cases which found that the instructors were employed by the driving school under contracts of service: New Way School of Motoring (LON/78/317), and John Wright Chalmers and Mary Wright Chalmers (LON/82/84). Either decision may be quoted in support of your stance if you feel that the facts are similar to your case.