Employed Or Self-Employed – Are You Sure?
By Sarah Laing, March 2018
Sarah Laing examines a recent case in which the tribunal found the taxpayer to be self-employed.

Whether an individual is employed or self-employed is an important question for both tax and National Insurance Contributions (NICs) purposes. For tax purposes, this is particularly relevant in relation to the deductibility of expenses and the ways in which losses can be relieved. With regard to NICs, for an employed earner, both the employee and the employer are likely to be liable to Class 1 contributions, and these can often be more expensive than the Class 2 (flat rate) and Class 4 (profits-based) contributions currently payable by the self-employed. 

Self-employed…or not?
Employment status cases often make the headlines in the professional press, and the June 2017 case of Tomlinson [www.financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j9911/TC05943.pdf] was no exception. In that case, the First-tier Tribunal (FTT) found that a double-glazing salesman (Mr Tomlinson) was self-employed, and not an employee as he had claimed. 

Mr Tomlinson had been a double glazing and conservatory salesman for more than 35 years. Until 2013, he and the companies he worked for had always understood and intended him to be self-employed, but a new adviser subsequently suggested that he might actually be an employee. 

Following a lengthy period of discussion, HMRC issued a formal decision that they regarded Mr Tomlinson as self-employed in respect of a lengthy engagement with a Midlands-based company. Mr Tomlinson appealed against the decision. While the case involved an appeal against a NICs decision, both parties agreed that the outcome of the appeal might also affect Mr Tomlinson’s income tax liability.

Many facts of the case pointed towards self-employed status, including that there was no written contract in place and Mr Tomlinson was not required to give notice of leaving. He was paid on a commission-only basis and did not receive holiday pay, sick pay or pension contribution payments. He provided his own car, mobile phone, and other equipment. However, many other factors emerged, which tended towards employed status. These included the authority to sign initial customer contracts on behalf of the company; an expectation for working in the company showroom approximately two days a week; an expectation to complete a holiday request form; appearances in company advertisements; and an expectation that Mr Tomlinson would not work for competitors.

Status factors
The FTT worked its way through various factors which have historically been used to determine employment status cases. Such factors include control, equipment, financial risk and payment terms, personal service and exclusivity, mutuality of obligation, benefits provided, integration within the company’s business, and intention.

In concluding its review of the overall effect of all such factors, the FTT found that the details of this case did not clearly point towards either employment or self-employment. However, looking at the overall picture, the FTT’s view was that Mr Tomlinson was in business on his own account and was not, therefore, an employee. The FTT concluded that it was decisive that both Mr Tomlinson and the company intended and believed that Mr Tomlinson was self-employed and had operated on that basis for almost 25 years.

As Mr Tomlinson had not discharged the burden of proof showing on the balance of probabilities that, during the period in question, he was employed under a contract of service, the decision that Mr Tomlinson was self-employed stood good.

Practical Tip:
As with most employment status cases, this case focused on the details of the terms on which Mr Tomlinson was engaged with the company. The tribunal’s decision was hindered by the fact that there was no written contract in place. Whilst a written contract alone will not be an overriding factor in an employment status case, it can often provide evidence in support of intention and belief in a particular working relationship.

This article was first printed in Tax Insider in December 2017.

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