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A worker's employment status, that is whether they are employed or self-employed, is not a matter of choice. Whether someone is employed or self-employed depends upon the terms and conditions of the relevant engagement. The tax and National Insurance Contributions (NICs) rules do, however, contain some special rules that apply to certain categories of worker in certain circumstances.
If you work for someone else, it is important to know whether you are working for that person in an employed capacity or in a self-employed capacity as an independent contractor. If you are an engager, it is your responsibility to correctly determine the employment status of your workers.
A worker's employment status will determine the charge to tax on income from that employment or self-employment. It will also determine the class of NICs, which are to be paid.
In order to answer the question of "Are you employed or self-employed?” it is necessary to determine whether the person works under a contract of service (employees) or under a contract for services (self-employed, independent contractor). For Tax and NICs purposes, there is no statutory definition of service or of a contract for services. What the parties call their relationship, or what they consider it to be, is not conclusive. It is the reality of the relationship that matters.
In order to determine the nature of a contract, it is necessary to apply common law principles. The courts have, over the years, laid down some factors and tests that are relevant, which is included in the overview below.
As a general guide as to whether a worker is an employee or self-employed; if the answer is 'Yes' to all of the following questions, then the worker is probably an employee:
If the answer is 'Yes' to all of the following questions, it will usually mean that the worker is self-employed:
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