Income Tax Essay

Topics: Employment, Tax, Income tax Pages: 6 (1890 words) Published: March 7, 2013
Assessment - Report writing
NAME: xxxx xxxx
HND Accounting
TUTOR: xxxx xxxx
DATE: April 2012

I would like to thank my tutor, xxxx xxxx for the valuable advice and support given to me to enable me to write my report.

The purpose of this report is to fully evaluate Katy’s situation by providing detailed information about the different issues regarding employment and self-employment to enable her to determine her employment status. Question 1

Employment and Self-employment
It is highly important to establish a person’s employment status. The key test to be applied when trying to determine a taxpayer’s status is concerned with the nature of the contract between the taxpayer and the person who is paying for the work done by that taxpayer. * If a contract of service exists then the taxpayer is regarded as an employee for tax purposes. * If a contract for services exists then the taxpayer is regarded as a self-employed person who is rendering services to a client. The criteria that would be used to determine Katy’s employment status are as follows: * Control: a contract of service is more likely to occur when more control of work is at the hands of the person paying for the work compared to the person doing the work. Employees in this category have no say when it comes to choosing when, where or how to do the job. Self-employed people on the other hand can make these decisions themselves. * Remuneration and Financial risk: employees are paid their wages regularly whether or not their employer is making any profit, and in any situation, they do not risk their own capital in the business. Self-employed people are paid for each job they do, and they make more profits or losses depending on the particular job, and they may also loss their capital if business fails. * Equipment: self-employed people tend to provide their own equipment but generally, employees work with the equipment’s of their employer. * Work performance and correction: employees do their work themselves and if mistakes are made during work, they will still get paid for the mistake and correction. Self-employed people tend to give their contract to subcontractors and if the work is returned to the client in an unsatisfactory manner, the client would not be expected to pay for any corrections possibly needed. * Holidays and sickness: employees tend to receive holiday and sickness pay while self-employed people are only paid for the job done and get nothing even if they are sick or on holiday. * Exclusivity: self-employed people normally have more than one business client while employees are employed by one employer and are an entire part of that business. Before deciding if a person is an employee of self-employed, it is important to judge all of the facts for each case and not rely on just 1 criterion. From the above criteria, I think it is safe to say that Katy should be classed as an employed individual by HMRC. Katy used to work on a full-time basis before she had children and was probably unable to decide how she wanted to get her work done. The same firm now subcontracts small jobs to Katy to do at home in her own time. She is unable to commit to specified work hours because of her children. However, a contract of service still exists. She gets a regular gross pay from her work after recording the total time she spends on client’s books. She should pay primary class one national insurance contributions as she is an employee. Katy uses equipment provided by her work (PC’s and accountants stationery with work logo on it). Self-employed people usually provide their equipment. Katy is expected to do her work by herself whether working from home or office. If she was self-employed, she would be able to send her work to subcontractors but the firm she works with subcontract work to her, hence making her an employee. Katy, as she thought is...
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