Question

Under IR35 Legislation used by HMRC to decide if you should be Self Employed or Employed. What are the differences between Employed and Self Employment, and what is the criteria established by case law and badges of trade. (100 words)

Answer 1

There is no specific definition for self employed in IR35 legislation. However one must look for legal meaning and basis of case studies. Following are the key differences between employed and self employed.

• period of contract: Under self employment, contracts are usually short term and in case of employment, the contracts are open ended.
• Termination: A self employed contract cannot be terminated unless other party has breached the terms. However, am employee can give a notice to terminate the contract in accordance with terms of the contract.
• Relationship between worker and client: A self employed or contractor is not obliged to the client. Such person can work in his/her own time but an employee cannot turn down the work given by his employer.
• control: An employee is subject to control by the employer and is paid even when there is no work. A self employed person has control over the work given by client and cannot be paid if the work is not done.
• Risk and return: a contractor, getting a work from a client, may include either a loss or profit. There's a good amount of risk under self employment compared to employment. An employee mostly receives salary and a bonus and has very low chances of risk i.e., lack of promotion.
• Perquisites: No perks are available under self employment. Perks and benefits are available to an employee.
• Mutual intention: A contractor’s stated intention may not reflect the facts. An employee contract would be persuasive.
• Sub-contract: A self employed can sub-contract the work assigned but this is not available for an employee.

The criteria established by case law and badges of trade is that each case has to be decided on its own merits.