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Sole trader employment status

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Hi, I hope you can advise, i’m very new to this.  As a sole trader, my husband has a contract for one company that is running on. I believe he is rightly self employed status, has his own insurance, is able to say when, if and how he works, etc.  However, he has been working 3 days per week for this company for nearly a year. Recently, someone highlighted the fact that he’s working for one company and HMRC may not like this. In his contract it says that he will cover any costs that may arise if his employment status is wrong. Do you think that would stand up in a court if HMRC challenged his employment status? I thought the onus was on the employer?   His contact also agrees to him bringing in someone else to do the job (however he’s a sole trader)?! 

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25th Apr 2019 08:55

This is a highly contentious area. HMRC prefer people to be employees as they get more tax that way. Accordingly they are trying to prove self-employed individuals are effectively employees wherever possible. Search for IR35 to find out more than you ever wanted to know.

You might want to try running through this. It is the HMRC employment status indicator. It tends towards coming out with "employee" but if you can get a self-employed result, that puts you in a good position. - https://www.tax.service.gov.uk/check-employment-status-for-tax/setup

The right to provide a substitute is a good indicator of independence (how can he be an employee if he can send someone else to do the work), but if it has never been used HMRC will often try to claim it is a sham. Has he a suitable colleague he could send in?

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25th Apr 2019 08:58

Jarole wrote:

Do you think that would stand up in a court if HMRC challenged his employment status?

One would hope not, if the company in question is shirking its responsibilities by hiding behind such clauses. But the effectiveness or otherwise of such clauses is a legal matter, so what you need is a solicitor. This is an accounting and tax forum.

Do let us know how you get on though.

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25th Apr 2019 09:37

What does he do with the other 2 /4 days of the week. Does he have other work ?? If not he should get some which would reinforce his self -employed status

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to bernard michael
25th Apr 2019 09:55

bernard michael wrote:

If not he should get some which would reinforce his self -employed status

Would it? I work as a dinner lady at the local school. I only do Friday lunchtimes. There's no question that it's an employment, even though I am self-employed fulltime.

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By Jarole
to Tax Dragon
25th Apr 2019 10:06

Yes, I used to work in a school, and dinner ladies could be “casual” but that’s not the same as self employed! It’s not straight forward is it! Thanks.

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By Jarole
to bernard michael
25th Apr 2019 10:07

He does not want full time work, which is why this suits him, but I think he will have to do a few days for someone else if possible. Thank you.

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to Jarole
25th Apr 2019 10:12

Jarole wrote:

He does not want full time work, which is why this suits him, but I think he will have to do a few days for someone else if possible. Thank you.

Not having full time work doesn't mean you're self employed.

Lots of employments are part time,

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to bernard michael
25th Apr 2019 10:20

Each and every engagement can have differing status, surely?

However, it's clear that the onus of responsibility, where an individual is treated as self-employed, rests with the engager.

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to Chris.Mann
25th Apr 2019 11:02

This guy seems to have accepted that responsibility by agreeing to compensate his "employer" if things go wrong.

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to lionofludesch
25th Apr 2019 11:12

I think the contract's more or less a colander.

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to Chris.Mann
25th Apr 2019 11:25

Let's hope so.

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to lionofludesch
25th Apr 2019 11:27

lionofludesch wrote:

This guy seems to have accepted that responsibility by agreeing to compensate his "employer" if things go wrong.

"Has he?" was the OP as I read it.

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to Tax Dragon
25th Apr 2019 11:40

OP says "In his contract it says that he will cover any costs that may arise if his employment status is wrong."

I'm not seeing your point.

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to lionofludesch
25th Apr 2019 12:36

I read the OP as a question, which I found in the very next sentence to the one you quote: "do you think that would stand up in a court?"

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By Matrix
25th Apr 2019 13:49

I agree with the above comment that it is the engager, his client, who bears the risk.

However he should have sought legal advice on the contract before signing. In practice it would be the client who would have to pay the undeclared NI and income tax and recover it from him. I don’t know how successful they would be at getting the NI back but they may try. I would get a new contract, depending on how strong a position he is in. These kind of clauses usually apply to those providing services through a limited company (I assume they know he is not?) but, while the company bears the risk currently, this is being transferred to the client from April 2020.

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