Guidance on Employment, Self-Employment, and IR35
When engaging a person to provide services to your business, it is important to consider whether the individual providing those services has the status of an employee of your business, or is instead self-employed.
These Guidance Notes and Checklists identify and clarify the relevant issues and provide a useful guide through the common misconceptions surrounding employment versus self-employment.
If a personal services or other intermediary company (rather than an individual self-employed person) is engaged by a client to provide services, these Guidance Notes explain how the IR35 might apply to the client, the company and the individual who actually provides the services on behalf of the company.
Guidance on Employment, Self-Employment, and IR35 is part of Business . Just £38.50 + VAT provides unlimited downloads from Business for 1 year.
Frequently Asked Questions
How do I tell whether someone I am engaging is self-employed or really an employee? +
Look at how the work is really done, not the job title. The main pointers to self-employment are that the individual can send a substitute rather than having to do the work personally, that they control how, when and where they work, that there is no ongoing obligation on you to offer work or on them to accept it, and that they take financial risk, use their own equipment and can profit from doing the job well. The more the picture looks like an employee, the higher the risk. These guidance notes and checklists walk you through the same factors.
What is the difference between an employee, a worker and a self-employed contractor? +
Employment law recognises three categories, but tax recognises only two. An employee has the full set of rights, including unfair dismissal protection and redundancy pay. A worker is a middle category who still gets core rights such as paid holiday, the national minimum wage and rest breaks, but not the full employee set. A self-employed contractor running their own business has none of these statutory rights and relies on their contract. For tax, HMRC treats a person as either employed or self-employed, with no worker category.
Can I avoid employee status just by putting self-employed in the contract? +
No. You cannot contract out of employment status. If the day to day reality is that the person works like an employee, a tribunal or HMRC can look behind the wording and find employment or worker status despite a self-employed label. Courts will disregard contract terms that do not reflect what actually happens, for example a substitution clause that is never realistically usable. The contract matters, but only alongside how the arrangement works in practice.
Is there an HMRC tool to check whether someone is employed or self-employed? +
Yes. HMRC provides a free online tool called Check Employment Status for Tax, or CEST, which gives HMRC's view on whether an engagement is employed or self-employed for tax and for the off-payroll rules. HMRC says it will stand by the result where your answers are accurate and match the real working arrangement. It is a useful check, but it is only as good as the facts you enter, so it does not replace looking honestly at how the work is actually done.
What is IR35 and do these guidance notes cover it? +
IR35, now usually called the off-payroll working rules, deals with people who provide their services through their own company, typically a personal service company, when they would look like an employee if hired directly. It does not apply to a genuine sole trader you engage in their own name. Who is responsible for the tax position depends on the size of the client engaging the company. These notes introduce IR35 so you can spot when it is in play. For the detail and the company contract templates, use the IR35 and Other Company Agreements group.
