Some very high-profile (and often incredibly lengthy and costly) cases involving TV personalities have thrust this topic back into the limelight again recently.
So, what is the difference between a contractor and an employee? If a contractor who is utilising their own limited company is deemed to be acting as a disguised employee, then they are required to operate PAYE and national insurance (employees and employers) on their income. This is a much less advantageous system than the corporation tax regime.
There are a number of factors to consider when considering whether the legislation applies or not:
Mutuality of obligation – is your client obliged to provide you with work and can you decline it?
Substitution – does it have to be you who performs the work?
Control – do you have flexibility as to when, where and how the work is performed?
Financial risk – is your income dependent on the successful completion of projects irrespective of time taken?
Equipment – do you have to provide your own equipment and training?
Number of clients – are you free to undertake work for multiple customers at the same time?
As you can see this is a complex and potentially risky area, so it is important to undertake regular reviews of your working arrangements to see if the legislation applies to your circumstances.
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