|Reply : 24 Nov 2008|
Many individuals choose to go self employed to obtain the tax benefits of self employed status. However, the issue that often arise out of the sub-contractor relationship is whether they are truly self employed or an employee. This may come about because the sub-contractor only has one customer and works for one account over a long period of time. While an employment tribunal will look at various tests to determine the employment status, including looking at the overall picture, HM Revenue and Customs take a more narrow view. They have set out what they consider to be a guide to this subject on their website http://www.hmrc.gov.uk/employment-status/index.htm. You can enter your information into their software and get an opinion on the subject.
An employment tribunal would look at whether their is any mutuality of obligation in the arrangement i.e. if an individual is asked to come into work and the individual has no choice in the matter, the relationship is more likely to be an employee. If the individual can refuse or send a substitute in place then this looks more like a self employed arrangement. An employment tribunal will also look at other factors such as the payment terms, whether the individual uses their own tools or equipment, whether the individual has insurance etc.
By paying taxes and NI on the individual this may be interpreted as being more of an employee/employer relationship.
You should speak to an accountant to determine the most appropriate legal entity to run your business.