It can be difficult sometimes to to determine a taxpayer’s status as it is not always clear cut as to whether a taxpayer is self employed or an employee. As a starting point, until clarification has been obtained, the taxpayer will be referred to as a “worker”. It can be that although the taxpayer thinks they are perhaps self employed that when you consider all the relevant facts, the taxpayer is say an employee of a business.
HMRC provides a status indicator, i.e. HMRC will themselves not rely on the answers provided and use the data provided merely as an indicator in determining the tax status of the worker concerned.
What are the relevant facts?
The answers to the following will provide a good starting point and will be asked on HMRC’s on-line portal:
- details of the contract
- the worker’s responsibilities
- who decides what work needs doing
- who decides when, where and how the work is done
- how the worker will be paid
- if the engagement includes any corporate benefits or reimbursement for expenses
What happens if the incorrect status is used?
When this happens, invariably the incorrect amount of tax (and National Insurance) is being paid or deducted and accounted to HMRC. If too little has been accounted to HMRC, additional costs can be incurred in putting matters right as well as it being necessary to reach a Settlement with HMRC.
Occasionally too much can be accounted for to HMRC which will be refunded to the taxpayer, with interest.
What if circumstances change?
HMRC must be kept up to date with any change in circumstances. A review will be performed on the status position which may or may not change.
For some taxpayers it is difficult to anticipate what the impact may be on a change of circumstances. If a taxpayer has the opportunity and it is always good practice to seek advice and guidance before any changes in circumstances are taken.
Help is at hand
If you would like to discuss this matter further, please contact me at firstname.lastname@example.org or on 07979 313 010.