Purchasing procedures - University of Central Lancashire

Appendix 2
Advice on Differentiation between Employee and Self-Employed Status
Firstly, it must be emphasised that the distinction between a contract of employment and a
contract for services is very important. It affects whether a person is liable to pay income tax
under PAYE, the level of National insurance contributions paid, whether a person is entitled
to Statutory sick pay and whether the person has the employment protection and other rights
of an employee. The difficulty for employers in making this distinction is that even when
both parties explicitly agree that the contractual relationship between them is to have the
status of a contract for services rather than be governed by a contract of employment, this
agreement could be challenged by HMRC. Such a challenge could involve HMRC imposing
expensive financial penalties. In some purported self-employment cases the HMRC has
claimed arrears of PAYE from the employer on the grounds that the reality of the relationship
was that of employer and employee under a contract of employment. The University wishes
to minimise the risk of this situation arising and, accordingly, wishes to ensure that the
contractual arrangements entered into correctly reflect the status of that relationship as either
one of employment or self-employment.
This issue is not merely of hypothetical interest. In a recent case a University had to defend
itself at an Industrial Tribunal case brought by a person formerly engaged by that University
on a self-employed basis who claimed that in reality he was an employee of the University
and should, therefore, enjoy specific employment rights and protections. Correspondence was
also issued to the same University from the HMRC querying the self-employed status of
another individual paid by the University on a consultancy basis.
Unfortunately, there is no simple checklist of factors which allow the distinction between the
two categories of contractual relationships to be safely made. The courts have made
judgments on individual cases based on an overall assessment of all the relevant factors in a
particular case, accepting that not all the relevant factors are of equal weight or importance in
any given situation.
Being employed or self employed in one job does not mean that a person will have the same
status in another job. A consultant could be employed and self employed at the same time. It
is the responsibility of those engaging consultants to ascertain the correct status.
The HMRC do have a useful online tool to try;
https://esi2calculator.hmrc.gov.uk/esi/external-cod.html which provides a series of questions
for you to answer, and then provides a guide to the consultants status.
Employed or self-employed?
A consultant answering „Yes‟ to all of the following questions may indicate employee status.
1. Do you have to do the work yourself?
2. Can someone tell you at any time what to do, where to carry out the work or when and
how to do it?
3. Do you work a set amount of hours?
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