PLEASE NOTE: The charity TaxAid advises only those people on low incomes whose problems cannot be resolved with HMRC.

Am I an employer?

Note for employers

Sometimes you may be unsure if a worker is an employee. As the person who is paying a worker, it is your responsibility to decide if the worker is an employee. If you get it wrong (and so operate their taxes incorrectly), you could be faced with a large bill from HMRC. If HMRC thinks you should have deducted tax and National Insurance from a worker’s wages and you didn’t, they can charge you the tax and National Insurance you should have deducted, together with interest and penalties.

Usually, the question will be ‘is this worker employed or self-employed?’ In a few special cases, which we look at below, there may be additional considerations:

  • Is the worker covered by the Construction Industry Scheme, or any other special rules?
  • Is the worker an employee because of the Agency legislation?

Employed or self-employed?

Some of the people who work for us will be self-employed and responsible for their own tax. These individuals may have a number of customers, they may use their own equipment and, most importantly, they should be registered as self-employed with HM Revenue and Customs (HMRC).

Even if a worker is registered as self-employed, it does not automatically follow that they are self-employed in the work they do for you. Each contract they hold with their customers needs to be looked at separately. They may be considered self employed for some work and employed for other. But as it is the employer who will be held accountable if they get it wrong, you should make the decision yourself about their status with you.

It is not the amount of money involved, or the number of hours worked, it is the character of the relationship which counts. At one end of the spectrum, someone who works set hours and only for you may be an employee. By contrast, someone who works irregular hours for perhaps five or six households, of whom you are one, may be self-employed. But whenever you pay someone for work, you need to ask yourself the question ‘Am I an employer?’

A distinction is often made as to whether the contract between you and the worker is a ‘contract of service’ or a ‘contract for service’.  In other words are you paying them to do what you want, with your equipment, when and where you want it done (i.e., you pay them to serve you), or have you paid for the result of their work and they are responsible for how they achieve it (i.e., you pay them to provide a particular service).  Often arrangements fall someway in between these extremes and it is necessary to look at all aspects of the working relationship in order to decide.

A legal document setting out the terms of the working relationship may help in so far as it sets out the rights and responsibilities of both parties.  However, it is important that the actual conduct of the parties concerned reflects any written agreements between them.

If you are unsure if someone who works for you is self-employed you should take advice.

TaxAid Tip

A good way to check someones status is to use the HMRC Status Indicator Tool at http://www.hmrc.gov.uk/calcs/esi.htm.