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Employed or self-employed? Why you need to know your workers’ status

8th August, 2016

Do you have workers who are essentially performing the same tasks but with some on the payroll and some treated as self-employed? If so you may have problems should HMRC undertake a PAYE Compliance Review.

Sarah Pownall, Head of Payroll Services at Nottingham chartered accountants Clayton & Brewill, explains.

Sarah Pownall - pay roll manager

Sarah Pownall

When HMRC conduct a PAYE Compliance Review (sometimes known as a PAYE audit), they will seek to establish whether there are any workers engaged by the business that are not on the payroll.

If there is one individual being taxed under PAYE and another person essentially doing the same job but being treated as self-employed, HMRC will have concerns about whether self-employment is the correct treatment for the second worker.

Was the decision to treat the second worker as being self-employed based on a careful review of the facts, or rather, based on the employer or the worker (or perhaps both) preferring the self-employed option?

The decision as to whether a worker should be treated as an employee or self–employed is not one of choice, for either your business or the worker. There are however key factors that can help establish a self-employed status:

Mutuality of obligation

Employed workers: The employer is obliged to offer work, and the employee is obliged to do as the employer requests.

Self-employed workers: Free to accept or turn down work. The business is under no obligation to offer any work, or further work.

Supervision, direction and control 

Employed workers: An employer may control the ‘what, how, where and when’ work is done. However, a highly skilled employee may also exercise “what” and “how” also as the employment demands.

Self-employed workers: Likely to be in control of most aspects of the work done. 

Personal service

Employed workers: Will only provide their services in person.

Self-employed workers: Will provide their own services, but they may also sub-contract work to others, or bring in additional people.

The three factors above are major areas to consider in establishing the relationship between a business and its workers.  There are other factors such as the provision of equipment, but these do not necessarily carry the same significance as the principle three shown above.

Self-employed status? Get it in writing

If you have established the correct framework for self-employment, make sure this is consolidated into a written contract for services so you have this to hand in the event of an investigation by HMRC. 

The best way to prepare for a PAYE compliance review to of course have your payroll note-perfect, and Clayton & Brewill’s payroll services team can help you with this. However, even with the perfect payroll you may still be subject to a random compliance audit. For help with your payroll or handling a PAYE audit please get in touch. We’d be pleased to help.

Call the Clayton & Brewill Payroll Services team on 0115 950 3044 or click here to send us an email.


Further, more detailed, information on worker status can be found at: and

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