Self Employed Status

Everywhere I go these days I seem to meet people who work for themselves, rather than picking up a pay slip at the end of each week. As such it is no surprise that clients are always asking us questions about employments status, so I thought I would investigate a bit further.

The number of workers categorised as self-employed has risen to its highest in 40 years, according to the Office for National Statistics report (20 August 2014). Around 4.6m people work for themselves in the UK, or 15% of the total number in work.

This does not surprise me, as across our client basis we see more and more sub-contract labour or people working on a consultancy basis, and therefore being classed as self-employed.

This does create a risk for businesses in assessing the employment status of these individuals in order to ensure that HMRC will not query their employment status. The risk for a business of not reviewing the employment status of all contractors and consultants can be significant PAYE & National Insurance liabilities if these are identified in routine tax inspections.

The good news is that in April 2015 HMRC re-invented its online Employment Status Indicator (ESI). It says the upgrade makes it more user friendly and addresses problems identified with the previous version. In addition, according to HMRC one important feature of the new version is:

You can rely on the ESI outcome as evidence of a worker’s status for tax/NICs/VAT purposes if both of the following apply:

  • Your answers to the ESI questions accurately reflect the terms and conditions under which the worker provides their services
  • The ESI has been completed by an engager or their authorised representative (if the tool has been completed by or on behalf of a worker the result is only indicative)

 However, you should download and print or save the PDF bearing the 14 digit ESI reference number from the summary of outcome screen. If the worker’s employment status is questioned in the future, HMRC will only be bound by the ESI outcome if this document can be produced.

Of course the key is in answering the ESI questions accurately, and as such professional advice may be required. But the above sounds like an improvement to a very useful tool in assessing your contractors and consultants, and remember to retain the documentation as evidence of your review process.

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