Tax consequences of employee vs contractor classification

Tax consequences of employee vs contractor...

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I have a contractor that is a borderline case employee/contractor when assessed using HMRC's Employment Status Manual (

The contract is directly with this individual (no intermediary). The current treatment is one of self-employment, hence as the employer we do not may any PAYE deductions or pay any employer's national insurance contributions.

I would like to understand the consequences of a reclassification. For example, if we were audited by HMRC and it was decided that we had incorrectly classified the contractor and should have been treating him as an employee.

  • Would HMRC come after us for employer's NI contributions that should have been paid?
  • Would there be any fines?
  • Are there any other consequences?

In regards to the above, are there any good sources to refer to?

Also, is there a proactive way to address borderline cases with HMRC?


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By jeremy.clonie
14th Jan 2016 11:57


For anyone looking for further information on this, here are a couple of sources:


These suggest that the consequences will be:

Paying the relevant employer's NICs, plus interest, plus penaltiesPossibly paying the employee's NICs and employee's tax, plus interest, plus penalties

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By SteveHa
14th Jan 2016 12:41

Give this a go and if it says the contractor is an employee, give HMRC a call and have a chat with them. Voluntarilly approaching them will be much better than waiting for them to come to you,

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